Question
A company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below. Alternative I Alternative II
A company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below.
Alternative I Alternative II
Initial investment R64,000 R120,000
Annual receipts R50,000 R60,000
Annual disbursements R20,000 R12,000
Annual depreciation R16,000 R20,000
Expected life 4 yrs 6 yrs
Salvage value 0 0
At the end of the useful life of whatever equipment is chosen the product will be discontinued. The company's tax rate is 50 percent and its cost of capital is 10 percent.
PLEASE CAN YOU SHOW ME HOW TO STEP BY STEP WORK THIS OUT IN PRACTICE PREP:
a) Calculate the net present value of each alternative.
b) Calculate the benefit cost ratio for each alternative.
c) Calculate the internal rate of return for each alternative.
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