Roadwheelers Ltd were considering buying an additional lorry but the company had not yet decided which particular lorry to purchase. The lorries had broadly similar technical specifications and each was expected to have a working life of 5 years.

The following information was available on the lorries being considered:

Required

(a) (i) Appropriate computations using the net present value method for each of the lorries under consideration. z (14 marks)
(ii) A report to the directors of Roadwheelers Ltd advising them as to which specific lorry should be purchased. (6 marks)

(b) A brief outline of the problems encountered in evaluating capital projects.

Transcribed Image Text:

(1) BN Lorries 'Roadhog' FX VR 'Sprinter' 'Rocket' Purchase price Estimated scrap 40 000 45 000 50 000 value after 5 years 8.000 9.000 14 000 Fixed costs other than depreciation Year 1 Year 2 2000 1.800 2000 1.800 Year 3 Year 4 Year 5 2 200 1 800 2.400 2.000 2 400 2 200 1.500 1 500 1400 1 400 1 400 Variable costs per road mile 6p 8p 7p