company is considering two capital expenditure proposals. Both proposals are for similar products and both are...
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company is considering two capital expenditure proposals. Both proposals are for similar products and both are expected to operate for four years. Only one proposal can be accepted. The following information is available. 4. Profit/(loss) Proposal A Proposal B 2$ (92,000) 9,000 5,000 9,000 29,000 Initial investment (92,000) 13,000 7,000 27,000 (3,000) Year 1 Year 2 Year 3 Year 4 Estimated scrap value at the end of year 4 8,000 8,000 Depreciation is charged on the straight line basis. The company estimates its cost of capital at 20% per annum. Required: a. Calculate the following for both proposals. i The payback period to one decimal place ii. The return on capital employed on average investment b. Give three disadvantages for each of the methods of appraisal used above. company is considering two capital expenditure proposals. Both proposals are for similar products and both are expected to operate for four years. Only one proposal can be accepted. The following information is available. 4. Profit/(loss) Proposal A Proposal B 2$ (92,000) 9,000 5,000 9,000 29,000 Initial investment (92,000) 13,000 7,000 27,000 (3,000) Year 1 Year 2 Year 3 Year 4 Estimated scrap value at the end of year 4 8,000 8,000 Depreciation is charged on the straight line basis. The company estimates its cost of capital at 20% per annum. Required: a. Calculate the following for both proposals. i The payback period to one decimal place ii. The return on capital employed on average investment b. Give three disadvantages for each of the methods of appraisal used above.
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Payback period for Proposal A Initial investment 92000 In order to calculate the inflows the depreci... View the full answer
Related Book For
Managerial Economics Theory Applications and Cases
ISBN: 978-0393912777
8th edition
Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield
Posted Date:
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