Question
(b) Marcon Limited is considering purchasing a new truck which is expected to save labour on an existing project. The estimated date for the two
(b) Marcon Limited is considering purchasing a new truck which is expected to save labour on an existing project. The estimated date for the two machines available on the market are as follows: Machine AMachine B GHS 000GHS 000 Initial cost (year 0)120,000120,000 Residual value of machines 20,000 30,000 (year 5) Annual labour cost savings: Year 140,000 30,000 240,000 30,000 350,000 50,000 420,000 70,000 520,000 20,000 Which machine will be selected under the following criteria : (i) NPV assuming a cost of finance of 10 percent p.a? (4marks) (ii) Internal rate of return? -Steps work out another NPV using a finance cost of 25%for both machines - This will result in a negative NPV for both machines A and B - for Machine A pick its NPV @10% and NPV 25% and substitute it into the IRR formula . This will give you a rate - Repeat step three for Machine B. Compare both rates decision: choose the IRR with the highest rate. (8marks) (iii) Payback period(4marks) (iv) State two (2) disadvantages of the payback method(2 Marks) (v) Calculate the future value of the following yearly cash flows at the end of the fifth year assuming a 10% return per annum Year Cash flow 0 500 1 300 2 200 3 100 4 50 (6 Marks) [26marks]
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