Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Apply Net Present Value for both projects with proper working. Calculate Payback period for both projects with proper working. Abdulla Inc is planning to start
Apply Net Present Value for both projects with proper working.
Calculate Payback period for both projects with proper working.
Abdulla Inc is planning to start a new manufacturing plant. To make the distribution process smoother, the Inc. is planning to have its own within-plant distribution system for its new roasting, grinding and packaging processes. The company invited various quotations from various suppliers to make its within plant distribution system smoother and finally shortlisted two alternatives conveyor to choose the one between them. These two alternatives are (i) a conveyor system with a high initial outlay but low annual operating costs and (ii) some forklift trucks, which cost less but have considerably higher operating costs. The management of the company has already taken the decision to construct the plant. Management has also understood that the choice of distribution system will have zero effect on the overall revenues of the project. The cost of capital for the plant is 8 percent, and the projects expected net costs are listed below
Initial Outlay Year 1 2 3 Conveyor System Forklift Trucks2 -$340,000 -$250,000 Operating Cash inflows 583,000 $44,000 $67,000 $64,000 $34,000 $87,000 $78,000 $104,000 $93,000 $128,000 $104,000 $145.000 Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started