Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Nchanga Demolishers Limited intends to purchase a new demolishing machine. The following information is available: Cost of machine: K120,000,000 Expected useful life: 6 years Scrap
Nchanga Demolishers Limited intends to purchase a new demolishing machine. The following information is available:
- Cost of machine: K120,000,000
- Expected useful life: 6 years
- Scrap value: K80,000,000
- Method of depreciation: Straight line
- Cost of Capital: 14%
Yearly Cash Flows and Profits:
Year | Cash Flow | Profit |
1 | 20,000,000 | 2,000,000 |
2 | 24,000,000 | 6,000,000 |
3 | 56,000,000 | 38,000,000 |
4 | 40,000,000 | 22,000,000 |
5 | 60,000,000 | 42,000,000 |
Requirements:
a) What are relevant costs in investment appraisal decision-making? b) Contrast the payback period and accounting rate of return (ARR). c) Using the information above, calculate the following:
- i) Payback period for the new machine in months.
- ii) Net present value (NPV) for the new machine and advise if Nchanga Demolishers Limited should invest in this machine.
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