A company has received two alternate bids for a reaction step in their process as follows:...

 

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A company has received two alternate bids for a reaction step in their process as follows: Plan A Plan B Type of equipment Batch Continuous Initial cost of equipment $15,000 $35,000 Annual cash expenses $20,000 $12,000 (excluding depreciation cost) Service life 10 years 15 years Salvage value (at end of service life) $1,000 $2,000 The annual compound interest rate is 6%. Please perform the following calculations for both plans: Q.2(a) Annual depreciation cost of equipment (assume straight-line depreciation) [4] Q.2(b) Total product cost (annual basis) [4] Q.2(c) Percentage incremental rate of return of Plan B compared to Plan A [4] Q.2(d) Which plan do you recommend? [3] A company has received two alternate bids for a reaction step in their process as follows: Plan A Plan B Type of equipment Batch Continuous Initial cost of equipment $15,000 $35,000 Annual cash expenses $20,000 $12,000 (excluding depreciation cost) Service life 10 years 15 years Salvage value (at end of service life) $1,000 $2,000 The annual compound interest rate is 6%. Please perform the following calculations for both plans: Q.2(a) Annual depreciation cost of equipment (assume straight-line depreciation) [4] Q.2(b) Total product cost (annual basis) [4] Q.2(c) Percentage incremental rate of return of Plan B compared to Plan A [4] Q.2(d) Which plan do you recommend? [3]

Answer rating: 100% (QA)

Q2a Annual depreciation Cost scrap value won straight line ... View the full answer