Question-8:

Production engineers of a manufacturing firm have proposed a new equipment to increase productivity of a manual gas-cutting operation. The initial investment (first cost) is Rs. 5,00,000 and the equipment will have a salvage value of Rs. 1,00,000 at the end of its expected life of 5 years. Increased productivity will yield an annual revenue of Rs. 2, 00,000 per year. If the firm's minimum attractive rate of return is 15%, is the procurement of the new equipment economically justified? Use P.W. method.