You are an engineer in charge of machinery in a coal mine underground operation. Machines in...

 

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You are an engineer in charge of machinery in a coal mine underground operation. Machines in your section are no longer safe to use, accidents are on the rise, as a result, and it is also becoming extremely un-economical to keep the machines in operation. The only other alternative available is to replace the machines. The table below details costs and revenues associated with the project to replace the machines, and thus improve safety and operational performance in your section. Cost of capital: 12% Year Costs 0 R 150,000,000 1 2 3 4 5 TOTAL Revenue R 80,000,000 R 70,000,000 R 60,000,000 R 45,000,000 R 45,000,000 Discount Factors 1.12 1,2544 1,405 1,574 1,762 Motivate your decision to replace the machines, using the above information. 10) Hint: Calculate NPV and explain why the decision to replace the machines is the right decision, given what the company is going through. You are an engineer in charge of machinery in a coal mine underground operation. Machines in your section are no longer safe to use, accidents are on the rise, as a result, and it is also becoming extremely un-economical to keep the machines in operation. The only other alternative available is to replace the machines. The table below details costs and revenues associated with the project to replace the machines, and thus improve safety and operational performance in your section. Cost of capital: 12% Year Costs 0 R 150,000,000 1 2 3 4 5 TOTAL Revenue R 80,000,000 R 70,000,000 R 60,000,000 R 45,000,000 R 45,000,000 Discount Factors 1.12 1,2544 1,405 1,574 1,762 Motivate your decision to replace the machines, using the above information. 10) Hint: Calculate NPV and explain why the decision to replace the machines is the right decision, given what the company is going through.

Answer rating: 100% (QA)

To evaluate the decision to replace the machines we need to calculate the Net Present Value NPV of t... View the full answer