The supervisor of Blaxland water authority is considering the replacement of a water filtration system. New...

 

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The supervisor of Blaxland water authority is considering the replacement of a water filtration system. New filtration system cost $181,500 and has useful life of five years. The authority depreciates all assets on a straight-line basis. The supervisor estimates that the new filtration system would result in substantial savings over the next five years. He has projected the following pattern of the operating cost savings (cash flows) Year 1 2 m 4 5 Cost savings $ 33,000 $ 34,500 $39,000 $54,000 $ 60,000 After giving the proposal some thought, the supervisor decided against purchasing the new filtration system. He said to his deputy supervisor: if we purchase that filtration system, the managing director will be very angry. With $36300 deprecation each year, the system won't pay its own way until three years out. By then, you and I will be in the unemployment que! ***** Required: A. Prepare a summary of the total cost for the water filtration system, for the next 05 years. (7.5 marks) B. Did the supervisor make a wise decision explain your answer? Comment on the behavioural issue that are relevant in this situation. (100 to 200 words) (7.5 marks) The supervisor of Blaxland water authority is considering the replacement of a water filtration system. New filtration system cost $181,500 and has useful life of five years. The authority depreciates all assets on a straight-line basis. The supervisor estimates that the new filtration system would result in substantial savings over the next five years. He has projected the following pattern of the operating cost savings (cash flows) Year 1 2 m 4 5 Cost savings $ 33,000 $ 34,500 $39,000 $54,000 $ 60,000 After giving the proposal some thought, the supervisor decided against purchasing the new filtration system. He said to his deputy supervisor: if we purchase that filtration system, the managing director will be very angry. With $36300 deprecation each year, the system won't pay its own way until three years out. By then, you and I will be in the unemployment que! ***** Required: A. Prepare a summary of the total cost for the water filtration system, for the next 05 years. (7.5 marks) B. Did the supervisor make a wise decision explain your answer? Comment on the behavioural issue that are relevant in this situation. (100 to 200 words) (7.5 marks)

Answer rating: 100% (QA)

A potential behavioural problem inherent in this situation is the conflict between 1 investment crit... View the full answer