A company is evaluating the investment in new machinery to manufacture a new product. Two alternatives...
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A company is evaluating the investment in new machinery to manufacture a new product. Two alternatives (Machine A and Machine B) are being considered. Estimates for the two machines are: Initial cost Useful life Residual value at the end of 5 years Annual profits (net of straight-line depreciation) The company has a cost of capital of 12% per annum. Discount factors: Year 1 2 3 4 10% 0.909 0.826 0.751 0.683 0.620 Machine A $800,000 12% 0.893 0.797 0.712 0.636 0.567 5 years $120,000 $100,000 15% 0.870 0.756 0.658 0.572 0.497 Machine B $760,000 5 years $60,000 $80,000 Required: Evaluate each machine using the following methods of capital appraisal: 20% 0.833 0.694 0.579 0.482 0.402 (i) Payback period in years. (ii) Net present value in $ (work to nearest $'000). (iii) Internal rate of return in % (use 12% and 20% as discount factors). (iv) Profitability index in %. A company is evaluating the investment in new machinery to manufacture a new product. Two alternatives (Machine A and Machine B) are being considered. Estimates for the two machines are: Initial cost Useful life Residual value at the end of 5 years Annual profits (net of straight-line depreciation) The company has a cost of capital of 12% per annum. Discount factors: Year 1 2 3 4 10% 0.909 0.826 0.751 0.683 0.620 Machine A $800,000 12% 0.893 0.797 0.712 0.636 0.567 5 years $120,000 $100,000 15% 0.870 0.756 0.658 0.572 0.497 Machine B $760,000 5 years $60,000 $80,000 Required: Evaluate each machine using the following methods of capital appraisal: 20% 0.833 0.694 0.579 0.482 0.402 (i) Payback period in years. (ii) Net present value in $ (work to nearest $'000). (iii) Internal rate of return in % (use 12% and 20% as discount factors). (iv) Profitability index in %.
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To evaluate each machine using the provided methods of capital appraisal lets calculate the payback period net present value NPV internal rate of retu... View the full answer
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham
Posted Date:
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