In order to carry a new investment project, company A has to purchase a machine for OMR 400,000. Company A staff have enough capacity to carry out the production, no one new will need to be hired, they are currently paid OMR 20,000. Calculate the relevant cost? a. OMR 20,000 b. OMR 380,000 c. OMR 400,000 d. OMR 420,000
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- 2. Choose from the two machines which is more economical? Machine A Machine B P 8,000 P 14,000 15 15 0 2,000 P 3,000 P 1,200 3% First Cost Life Salvage Value Annual Operation P 2,400 Annual Maintenance P 1,000 Taxes and Insurance 3% Which will you choose if minimum required profit is 16%. Use Rate of Return on Additional Investment, Annual Cost Method and Present Worth MethodA company is going to buy a new equipment for manufacturing itsproduct. Four different equipment’s are available; costs, operating and otherexpenses are as follows:Equipment A B C DFirst Cost Php 24,000 Php 30,000 Php 49,600 Php 52,000Power per year Php 1300 Php 1360 Php 2400 Php 2520Labor per year Php 10,600 Php 9320 Php 4200 Php 2700Maintenance/year Php 2800 Php 1900 Php1300 Php 700Taxes & Insurance 2% 2% 2% 2%Life; years 5 5 5 5 Money is worth 10% before taxes to the company. Which equipment shouldbe purchased ? Choose which method is applicable.A new project being considered by BLW Co would require 1,000 hours of skilled labour. The current workforce is already fully employed but more workers can be hired in at a cost of $20 per hour. The current workers are paid $15 per hour on a project that earns a contribution of $10 per hour. What is the relevant cost of labour to be included in the project appraisal? A $10,000 B $15,000 C $20,000 D $25,000
- (a) Kiwk Berhad projects unit sales for a new fitness equipment as follows: Year 1 2 3 Unit Sales 4,200 3,500 4,000 The estimated selling price of the fitness equipment is RM1,200 per unit. The variable costs are RM800 per unit while the fixed costs are RM500,000 per year. The project requires an initial investment of RM650,000 in assets, and it will be depreciated using the reducing balance method of 40% per year. In Year 3, these assets can be sold for 20 percent of their acquisition cost. The company will also incur repair and maintenance costs of RM100,000 per year for these assets. Production of the fitness equipment will require investment in net working capital of RM130,000. However, only RM30,000 of the net working capital will be recovered when the project ends. The tax rate is 25 percent, and the required rate of retum is 12 percent. Required: (i) Compute the net cash flows of this project for Year 0 to Year 3. (ii) Calculate the net present value for this project. (iii)…A piece of production equipment is to be replaced immediately because it no longer meets quality requirements for the end product. The two best alternatives are a used piece of equipment (E1) and a new automated model (E2). The economic estimates for Alt E1 Alt E2 Capital Investment PhP 14,000 PhP 65,000 Aппual Expenses 14,000 9,000 each are shown in the accompanying table. Useful Life (years) 5 20 Market Value (at the end of useful life) 8,000 13,000 The MARR is 15% per year. Which alternative is preferred, based on the (a) coterminated assumption with a five-year study period and an imputed market value for Alternative b? Use FW. ANSWER: FW (E1) = PhP Blank 1 FW (E2) = PhP Blank 2 The best alternative is EBlank 3Use Service-Output Method. A Machine costs ₱80,000 and an estimated life of 10 years with a salvage value of ₱5,000. Assuming that the total service of the machine is 1,497,600 hours and the number of working days per year is 260 days. What is the book value after 4 years if the machine production time a is 24 hours? Answer: BV4 = P 78,750.00Show Solution
- Two alternative machines will produce the same product, but one is capable of higher-quality work, which can be expected to return greater revenue. The following are relevant data. Determine which is the better alternative, assuming repeatability and using SL depreciation, an income-tax rate of 27%, and an after-tax MARR of 11%. Capital investment Life Calculate the AW value for the Machine A. Machine A $23,000 12 years $4,000 Terminal BV (and MV) Annual receipts Annual expenses Click the icon to view the interest and annuity table for discrete compounding when the MARR is 11%er year. AWA (11%) = $ (Round to the nearest dollar.) Machine B $33,000 6 years $1,500 $197,000 $176,000 $152,000 $130,00016. An old pump costs P25,000 a year to maintain. What expenditure for a new pump is justified if no maintenan will be required for the first 2 years, P5,000 a year for the next 8 years and P25,000 a year thereafter. Assur. cost of money is 10% pa and no other costs are to be considered. a. P126,940 b. P 131,569 c. P 126,825.03 d. P162,825.03 17. A firm purchased and placed in service a new piece of semi-conductor equipment The cost basis for t equipment is P100,000. Determine the depreciation charge permissible in the fourth year. Use Modifi Accelerated Cost Recovery System (MACRS). Class life is six years Activate WindowsA manufacturing company is trying to decide between the two machines shown below. Determine which machine should be selected on the basis of rate of return. Assume the MARR is 20% per year. Machine A Machine B Initial Cost, $ -18,000 -35,000 Annual operating cost, $/year -4,000 -3,600 Salvage value, $ 1,000 2,700 Life, years 3 6
- RLC Manufacturing is planning to purchase a cutting equipment. Information are as follows: Equipment 1 Equipment 2 First Cost P 12,000 P 18,000 Salvage Value P 600 P 2,000 Annual Operation P 3,200 P 2,500 Annual Maintenance P 1,200 P 1,000 Taxes & Insurance 3% 3% Life, years 10 15 Money is worth at least 16%. Which equipment should be selected? Use: a. Rate of Return Method Rate of Return Method Annual Cost Method NOTE: Show cashflow diagram.Lesego Ltd is considering an investment in a new machine for the production of a new product, X. There are two possibilities, Machine A and Machine B. Both product X and the machine would have an expected life of five years.The following information is available:Product X Selling price $50Variable cost 32Increase in fixed overhead (excluding depreciation of the new machine) is $90,000 per year.YearSales units 1 10,0002 15,0003 20,0004 20,0005 5,000 Machine A Machine BInitial cost ($000) 550 480Residual value 50 30The company’s cost of capital is 10%,Required:Evaluate each machine, using the following methods:Accounting rate of return Payback;Net present value. Discuss the importance of capital budgeting in organisations.S7.37 Tim Smunt has been asked to evaluate two machines. After some investigation, he determines that they have the costs shown in the following table. He is told to assume that: 1. The life of each machine is 3 years. 2. The company thinks it knows how to make 12% on investments no more risky than this one. 3. Labor and maintenance are paid at the end of the year. MACHINE A MACHINE B $10,000 2,000 4,000 2,000 $20,000 Original cost Labor per year Maintenance per year Salvage value 4,000 1,000 7,000 Determine, via the present value method, which machine Tim should recommend.