Globe Limited is considering a new Machinery, Relevant details are as under: Cost of New machinery: $
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Question:
Globe Limited is considering a new Machinery, Relevant details are as under:
Cost of New machinery: $ 10,000; Life 6 years; WACC: 8.5%
Additional Costs
Overhead: $2000 each year
Annual Savings
Direct materials: Year 1-3: $2750; Year 4-5: $2420; Year 6: $2970
Direct labor: Year 1-2: $1650; Year 3-4: $1430; Year 5-6: $1540
Inflation Rates
Direct materials: Year 1-2: 8%; Year 3-4: 10%; Year 5-6: 12%
Direct labor: Year 1-3: 12%; Year 4-5: 8%; Year 6: 10%
Factory Overhead: Year 1: 8%; Year 2-5: 12%; Year 6: 10%
Required:
Calculate the following. Show each and every calculation clearly. Round up to two decimal places.
Net Present Value (NPV)
Profitability Index (PI)
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
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