A company is analysing two available machines and wishes to purchase only one alternative, considering their...
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A company is analysing two available machines and wishes to purchase only one alternative, considering their fund constraints. First Machine will be having initial outlay of $800,000, with a scrap value of $20,000 after 5 years, and the second machine requires an initial outlay of $650,000, with $50,000 salvage value after 5 years. The company's tax rate is 50%. Profits before Depreciation and Taxation are given as under: Years Profit Machine 1 ($) Profit Machine 2 ($) 1 236,000 140,000 2 276,000 300,000 3 236,000 280,000 4 246,000 180,000 5 250,000 150,000 You are required to analyse both alternatives on the basis of Payback Period and NPV. Take discount rate 12%. A company is analysing two available machines and wishes to purchase only one alternative, considering their fund constraints. First Machine will be having initial outlay of $800,000, with a scrap value of $20,000 after 5 years, and the second machine requires an initial outlay of $650,000, with $50,000 salvage value after 5 years. The company's tax rate is 50%. Profits before Depreciation and Taxation are given as under: Years Profit Machine 1 ($) Profit Machine 2 ($) 1 236,000 140,000 2 276,000 300,000 3 236,000 280,000 4 246,000 180,000 5 250,000 150,000 You are required to analyse both alternatives on the basis of Payback Period and NPV. Take discount rate 12%.
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Answer rating: 100% (QA)
SOLUTION Step 1 Calculate the Cash Flows for each year for both machines For Machine 1 Year 1 Profit before Depreciation and Taxation Tax 236000 05 236000 118000 Year 2 Profit before Depreciation and ... View the full answer
Related Book For
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
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