Question 1

Canadorex Industries is considering the purchase of a new machine for the production of Tires. Machine A costs $2,100,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $150,000 per year. Machine B costs $4,500,000 and will last for nine years. Variable costs for this machine are 30 percent and fixed costs are $100,000 per year. The sales for each machine will be $9 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis.

If the company plans to replace the machine when it wears out on a perpetual basis, which machine should you choose and give your reason(s) from an empirical analysis.

Question 2

You have been selected to project manage the construction of a sports centre and the project is 3 months into phase 2, which is to complete the final fit (all the interiors) of the ground floor, fit out all the electrics, plumbing and gasworks for the first and second floors and finalise the installation of the roof and air conditioning system.

When going through all the progress reports previously given to the Project Sponsor and stakeholders, and those sent to the previous PM, you realise that this project phase had:

• a planned value of 280,000
• an earned value of 250,000 and
• actual costs amounting to 295,000

Is there any implication(s) for this project? If yes, what is/are the implications in your assessment?