You are the financial manager for a large organization, and two managers have presented the following...
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You are the financial manager for a large organization, and two managers have presented the following proposals. Each proposal requires a $100,000 investment, and the cost of capital (discount rate) for your organization is 5%. Alternative 1: a new machine costing $100,000 will generate annual labour cost savings of $25,000 for 10 years. Alternative 2: a new machine costing $100,000 will generate uneven cost savings as follows: Years 1 2 3 4 5 6 40,000 50,000 30,000 50,000 20,000 10,000 Required: Calculate 1) Payback Period. 2) Net Present Value 3) Internal Rate of Return 4) Profitability Index For each of the alternatives. Which proposal would you recommend? You are the financial manager for a large organization, and two managers have presented the following proposals. Each proposal requires a $100,000 investment, and the cost of capital (discount rate) for your organization is 5%. Alternative 1: a new machine costing $100,000 will generate annual labour cost savings of $25,000 for 10 years. Alternative 2: a new machine costing $100,000 will generate uneven cost savings as follows: Years 1 2 3 4 5 6 40,000 50,000 30,000 50,000 20,000 10,000 Required: Calculate 1) Payback Period. 2) Net Present Value 3) Internal Rate of Return 4) Profitability Index For each of the alternatives. Which proposal would you recommend?
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Answer rating: 100% (QA)
To evaluate the two proposals lets calculate the payback period net present value NPV internal rate of return IRR and profitability index PI for each ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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