The management of Python Co is trying to decide which of the two machines to purchase...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The management of Python Co is trying to decide which of the two machines to purchase to help with production. Only one of the two machines will be purchased. Machine X costs K63,000 and machine Y costs K110,000. Both machines would require a working capital investment of K12,500 throughout their operational life, which is four years for machine X and six years for machine Y. The expected scrap value of either machine would be zero. The estimated cash flows with each machine are as follows: Year Machine X Machine Y K K 1 25,900 40,300 2 28,800 32,900 3 30,500 32,000 29,500 32,700 48,500 6 44,200 With machine Y there is some doubt about its design features, and consequently there is some that it might prove unsuitable. Because of the higher business risk with machine Y, the machine Y project cash flows should be discounted at 15%, whereas machine X cashflows should be discounted at only 10%. Required: a) For both machine X and machine Y, calculate: i) The payback period ii) The net present value (NPV) iii) The internal rate of return (IRR) (20 marks) b) Discuss the main benefits and limitations of payback, NPV, IRR and ARR (10 marks) The management of Python Co is trying to decide which of the two machines to purchase to help with production. Only one of the two machines will be purchased. Machine X costs K63,000 and machine Y costs K110,000. Both machines would require a working capital investment of K12,500 throughout their operational life, which is four years for machine X and six years for machine Y. The expected scrap value of either machine would be zero. The estimated cash flows with each machine are as follows: Year Machine X Machine Y K K 1 25,900 40,300 2 28,800 32,900 3 30,500 32,000 29,500 32,700 48,500 6 44,200 With machine Y there is some doubt about its design features, and consequently there is some that it might prove unsuitable. Because of the higher business risk with machine Y, the machine Y project cash flows should be discounted at 15%, whereas machine X cashflows should be discounted at only 10%. Required: a) For both machine X and machine Y, calculate: i) The payback period ii) The net present value (NPV) iii) The internal rate of return (IRR) (20 marks) b) Discuss the main benefits and limitations of payback, NPV, IRR and ARR (10 marks)
Expert Answer:
Related Book For
Supply Chain Focused Manufacturing Planning and Control
ISBN: 978-1133586715
1st edition
Authors: W. C. Benton
Posted Date:
Students also viewed these accounting questions
-
A mother is trying to decide which of the two assets listed below to give to her adult daughter. The mothers marginal income tax rate exceeds her daughters. Describe the pros and cons of giving each...
-
The Big Country Manufacturing Company is trying to decide which of several lot sizing procedures to use for its MRP system. The following information pertains to one of its fast-moving component...
-
A corporation is trying to decide which of three makes of automobile to order for its fleet-domestic, Japanese, or European. Five cars of each type were ordered, and, after 10,000 miles of driving,...
-
Provide a brief description of the JDBC URL.
-
Match the following product types to the appropriate product development description. _______Technology-push products _______Platform products _______Process-intensive products _______High-risk...
-
Gail Gordon, PA, has found ratio and trend analysis relatively useless as a tool in conducting audits. For several engagements, she computed the industry ratios included in publications by The...
-
Create a table about the password policies enforced at the following: a. Your schools network b. Your schools email system c. Your personal email account (at Yahoo, Gmail, etc.) d. Your financial...
-
On November 1, 2010, Edwin, Inc., borrowed cash and signed a $60,000, one-year note payable. Required 1. Compute the following items assuming (i) an interest-bearing note at 12%, (ii) a...
-
Rather than ask questions during a negotiation, it is more effective to explain your position to the other side in great detail. The more you talk, the stronger will be your chance to gain an...
-
You have won a lottery! You will receive $200,000, after taxes, each year for the next five years. Required Describe the process you will go through in determining how to invest your winnings....
-
Bluegill Company sells 16,200 units at $100 per unit. Fixed costs are $81,000, and operating income is $729,000. Determine the (a) variable cost per unit, (b) unit contribution margin, and (c)...
-
Maddie Inc. sold $8,200 worth of merchandise on June 1, 2015 on credit. After inspecting the inventory, the customer determined that 10% of the items were defective and returned them to Maddie Inc....
-
In a lake, a population of fish displays variations in mating behaviors. Some individuals within the population prefer different courtship rituals, leading to reproductive isolation. What type of...
-
Find f' f(x) = x+x3 - 20x2 X
-
An economy is in equilibrium at a GDP of $100, and at a GDP of $400 there is a recessionary gap of $30. 1. Find the MPC, MPS, and Multiplier 2. On a correctly labeled Consumption Function Graph, show...
-
For each of the problems listed below, determine the following values for each activity: the earliest start time, earliest finish time, latest finish time, latest start time, and activity slack time....
-
An investor sells a European call on a share for $4. The stock price is $47 and the strike price is $50. Under what circumstances does the investor make a profit? Under what circumstances will the...
-
The cost reduction must be significantly lower than the current direct operating costs in order for an outsourcing proposal to be attractive. What are the generic strategic benefits of outsourcing?...
-
The sorting supervisor wishes to decrease the number of kanbans in the package sorting process described in Problem 5. Which of the following alternatives has the greatest effect on reducing the...
-
Compare the remanufacturing production planning and control framework with the conventional production planning and control framework. What are the major differences between the two systems?
-
Joe, the nurse manager for CCU, counsels Registered Nurse Bob about his errors in charting and tells Bob that the next time an error is made, a formal warning will be put in his personnel file. Bob...
-
Which theorist helps a manager understand why an employee who does not feel safe on the job cannot perform his or her job duties well? A. Maslow. B. Herzberg. C. Vroom. D. Alderfer.
-
Research by Aiken et al. on magnet hospitals shows: A. Job satisfaction has no impact on an organizations effectiveness. B. Magnet hospitals have high turnover rates. C. Job satisfaction is...
Study smarter with the SolutionInn App