20. XY Ltd. wants to install a new machine in the place of an existing old machine...
Question:
20. XY Ltd. wants to install a new machine in the place of an existing old machine which has become obsolete. The company made extensive enquiries and from the replies received short listed two offers. The two models differ in cost, output and anticipated net revenue. The estimated life of both the machines is five years. There will be only negligible salvage at the end of the fifth year. Further details are as follows:
(` in lakhs)
Machine Cost (`)
Anticipated after Tax Cash Flow (`)
Year 1 Year 2 Year 3 Year 4 Year 5 A 25 - 5 20 14 6 B 40 10 14 16 17 8 The company’s cost of capital is 16%. You are required to make an appraisal of the two offers and advise the firm by using the following: (i) Payback period; (ii) NPV Method,
(iii) PI and (iv) IRR. [ICWA Final June 1999]
Step by Step Answer:
Financial Management
ISBN: 9789352605606
1st Edition
Authors: Swapan Sarkar, Bappaditya Biswas, Samyabrata Das, Ashish Kumar Sana