Question
ABC Manufacturing is considering investing in one of two new machines. The companys cost of capital is 8% and tax rate is 28%. Other information
ABC Manufacturing is considering investing in one of two new machines. The company’s cost of capital is 8% and tax rate is 28%. Other information related to both machines are as follows:
Particulars | Machine X | Machine Y |
Cost of machine | 800,000 | 1,000,000 |
Expected life | 3 years | 3 years |
Annual Income (before Tax & depreciation) | 300,000 | 400,000 |
Depreciation is charged on a straight-line basis. You are required to calculate: a. Accounting Rate of Return (ARR) b. NPV c. Profitability index
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Cornerstones of Financial and Managerial Accounting
Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen
2nd edition
978-0538473484, 538473487, 978-1111879044
