Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

ABC steel plant industry plans to manufacture a product. The product needs a special component. The industry has reviewed that the special component can be

ABC steel plant industry plans to manufacture a product. The product needs a special component. The industry has reviewed that the special component can be produced in the plant or bought in. An investment is required to start the production of the component for which two mutually exclusive projects A and B representing different production processes are available. The alternative option is to buy in from another company representing project C.

Using the information from table 3 and Discount Cash Flow criteria, calculate Pay Back Period (PBP), Account Rate of Return (ARR), Net Present Value (NPV) and Internal Rate Return (IRR) for project A & Project B if the industry plans to manufacture 6,000 units per year.

image text in transcribed

annual revenue is capital value
for instance project a: 360,160
Table 3 Description Capital (RO) Life (years) Capacity (units per year) Salaries per year (RO) Other fixed costs per year (RO) Wages per year (RO) Cost of materials per year (RO) Other variable costs per year (RO) Scrap value at the end of the year (RO) Cost of capital (%) Project-A 360,160 15 10,000 45,000 40,000 70,000 215,810 35,000 33,620 17 Project-B 499,820 15 12,000 50,000 85.000 80,000 289,800 40,000 43,920 17 Table 3 Description Capital (RO) Life (years) Capacity (units per year) Salaries per year (RO) Other fixed costs per year (RO) Wages per year (RO) Cost of materials per year (RO) Other variable costs per year (RO) Scrap value at the end of the year (RO) Cost of capital (%) Project-A 360,160 15 10,000 45,000 40,000 70,000 215,810 35,000 33,620 17 Project-B 499,820 15 12,000 50,000 85.000 80,000 289,800 40,000 43,920 17

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Banking Reforms And Monetary Policy In The Peoples Republic Of China

Authors: Yong Guo

1st Edition

1403900787,1403914540

More Books

Students also viewed these Finance questions

Question

10. What does the group discussion test?

Answered: 1 week ago