The cost comparison method is to be applied in assessing two alternative invest- ment projects, A...

 

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The cost comparison method is to be applied in assessing two alternative invest- ment projects, A and B, as well as alternative C (buying in from outside). The following data are available: Table 2.7 Data for the investment projects A and B Data Initial investment outlay (€) Liquidation value (€) Economic life (years) Capacity (units per year) Rate of interest (% per year) Variable costs (€ per year) (x = Production volume) Other fixed costs (€ per year) Alternative A 13,000 4,000 6 10,000 10 8 100,000X²+1.7x 50 Alternative B 12,000 2,000 6 8,000 10 0.8x 600 The items can be bought in at a unit price of €1.50 for volumes of up to 10,000 units. (a) Ascertain the cost functions CA, CB and Cc for the various alternatives. (b) Which alternative is preferred when the production volume is (bl) 4,000 units? The cost comparison method is to be applied in assessing two alternative invest- ment projects, A and B, as well as alternative C (buying in from outside). The following data are available: Table 2.7 Data for the investment projects A and B Data Initial investment outlay (€) Liquidation value (€) Economic life (years) Capacity (units per year) Rate of interest (% per year) Variable costs (€ per year) (x = Production volume) Other fixed costs (€ per year) Alternative A 13,000 4,000 6 10,000 10 8 100,000X²+1.7x 50 Alternative B 12,000 2,000 6 8,000 10 0.8x 600 The items can be bought in at a unit price of €1.50 for volumes of up to 10,000 units. (a) Ascertain the cost functions CA, CB and Cc for the various alternatives. (b) Which alternative is preferred when the production volume is (bl) 4,000 units?