Question
The company you work for is interested in investing in a new machine to increase its production of grubunens in Omnicon Persei 10. The machinery
The company you work for is interested in investing in a new machine to increase its production of grubunens in Omnicon Persei 10. The machinery with all its installment and shipping costs are worth1,600 credits. You find three different people to sell the salvage; first will buy it in 3 years for 50% of its face value, second offers to buy it in 5 years for 20% of FV, third will buy it in 10 years for 10% of its FV.The bank offers 12%, 9%, 5% and 3% interest rates on their loans for 3, 5, 10 and 20 years. At the end of20 years the machinery will be useless. Due to fluctuations on demand, strategy department believes that the project annual benefits would diminish the longer the machinery is used. They believe 460, 450, 445 or410 credits would be the annual benefits and 115, 120, 135 or 155 would be the annual costs, respectively, if you choose to use the machinery for 3, 5, 10 or 20 years.
•Using CR criterion, which option would be better?
•Using AE criterion, which option would be better?
•Using IRR criterion, which option would be better?
The company you work for is interested in investing in a new machine to increase its production of grubunens in Omnicon Persei 10. The machinery with all its installment and shipping costs are worth1,600 credits. You find three different people to sell the salvage; first will buy it in 3 years for 50% of its face value, second offers to buy it in 5 years for 20% of FV, third will buy it in 10 years for 10% of its FV.The bank offers 12%, 9%, 5% and 3% interest rates on their loans for 3, 5, 10 and 20 years. At the end of20 years the machinery will be useless. Due to fluctuations on demand, strategy department believes that the project annual benefits would diminish the longer the machinery is used. They believe 460, 450, 445 or410 credits would be the annual benefits and 115, 120, 135 or 155 would be the annual costs, respectively, if you choose to use the machinery for 3, 5, 10 or 20 years.
•Using CR criterion, which option would be better?
•Using AE criterion, which option would be better?
•Using IRR criterion, which option would be better?
Step by Step Solution
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i Using CR criterion The CR criterion is the ratio of the present value of the benefits of a project to the present value of its costs The option with the higher CR ratio is the better option For the ...Get Instant Access to Expert-Tailored Solutions
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