Answered step by step
Verified Expert Solution
Question
1 Approved Answer
QUESTION 2 (14 MARKS) Abu Ilyas Engineering is considering including two pieces of equipment, a CONVEYOR BELT and an overhead FORKLIFT system, in this year's
QUESTION 2 (14 MARKS) Abu Ilyas Engineering is considering including two pieces of equipment, a CONVEYOR BELT and an overhead FORKLIFT system, in this year's capital budget. The projects are independent The initial cash outlay for the CONVEYOR BELT is SR22,000 and that for the FORKLIFT system is SR22.430. The firm's REQUIRED RATE OF RETURN is 17%. The company has set its maximum pay-back-period cut off to be 3 years. After-tax free cash flows are as follows: Year 0 1 2 CONVEYOR BELT SR22.000 SR8,780 SR6,540 SR8.700 SR9,500 FORKLIFT SR22,430 SR8.500 SR8,680 SR7,500 SR7,500 4 Calculate: A) Payback Period for FORKLIFT PROJECT ONLY (2 marks) B) Net Present Value for CONVEYOR BELT PROJECT ONLY (3 marks) C) Profitability Index for both CONVEYOR BELT PROJECT and FORKLIFT project (2 marks) D) Write the summary of your calculations above in the shaded area of the tables below for each of the project and their decision. (5 marks) CONVEYOR BELT Project Method Decision Project's Value 2.78 years Comparison 3 years ACCEPT 0 Payback Period Net Present Value Profitability Index IRR 1 18.76% 17% FORKLIFT Project Method Project's Value Decision years -S118.83 Comparison 3 years 0 REJECT Payback Period Net Present Value Profitability Index IRR 1 16.68% 17% E) If the projects are mutually exclusive, which project to be accepted and why? (2 marks)
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