Calculate the net present value of each option

Assignment Help Accounting Basics
Reference no: EM133061181

Question - Dectron Ltd is looking to expand its operations by opening a second manufacturing facility. It intends acquiring new plant and equipment for this facility. It is currently considering the following two options that can help increase capacity:

Plant and equipment can be imported at a cost of R840 000. This equipment will generate net cash inflows of R200 000 in the first year and this is expected to increase by 10% for each year for the next four years. The equipment will have a useful life of five years after which it can be sold for R60 000.

Plant and equipment can be purchased locally at a cost of R800 000. This equipment will generate net cash inflows of R300 000 per annum for four years. The equipment will have a useful life of four years after which it will have to be scrapped. It is not expected to realise any cash on its scrapping. The company's cost of capital is 12%. Assets are depreciated on a straight line basis over their useful lives.

1. Calculate the Net Present Value of each option.

2. Based on the NPV's calculated, what advice would you give if these were independent projects.

Reference no: EM133061181

Questions Cloud

Calculate the closing cash balance for March : James will need stationery and a computer in January 2022 for a total amount of R50,000. Calculate the closing cash balance for March
What is the cost per box of stationery : Overhead charges total $408,000 per month and are considered fully fixed for purposes of cost estimation. What is the cost per box of stationery
Find present value that will generate the given future value : Consider the following future value - $4,433 at 10 3/4% compounded quarterly for 6 years. Find present value that will generate the given future value
What is the size of the monthly payment : You have $320,000. You put it in an account for 10 years, then you make monthly withdrawals for the next 20 years. What is the size of the monthly payment
Calculate the net present value of each option : Dectron Ltd is looking to expand its operations by opening a second manufacturing facility. Calculate the Net Present Value of each option
Calculate the reduction in the profit contribution : Blue Valley Incorporated prefers to take the cheaper option and the firm assumes a 360- day per year cycle. Calculate the reduction in the profit contribution
Compute the expense to be recognized : During 2019, 20 employees left the company and 25 more were estimated to leave in 2020. Compute the expense to be recognized in 2019
What is the value of ending inventory at December : Ricky sold 325 units during 2021. Assuming a periodic inventory system is used, what is the value of ending inventory at December 31 on a LIFO basis
What is meant by unfunded liability : What is meant by unfunded liability? and what is the unfunded liability in a government pension plan? Calculate five ratios of a government retirement plan

Reviews

Write a Review

Accounting Basics Questions & Answers

  Explain how each study selects the research participants

ACC8000 - Explain how each study selects the research participants and comment on which approach you think is more rigorous, stating reasons why you believe one approach is superior.

  What amount of note payable will be shown as current portion

Find What amount of the note payable will be shown as current portion of Long-Term Note Payable on the balance sheet as of December 31, 2018?

  Calculate the amount of the annual rental payment required

Assuming the lessor desires a 10% rate of return on its investment, calculate the amount of the annual rental payment required

  Prepare the journal entries to recognize the swap

On January 2, 2020, Crane Corp. issues a $10-million, Prepare the journal entries to recognize the swap, assuming company follows hedge accounting under IFRS

  Prepare a note amortization schedule for the first year

(Negative Amortization) Good-Deal Inc. developed a new sales gimmick to help sell its inventory of new automobiles. Because many new car buyers need financing, Good-Deal offered a low down payment and low car payments for the first year after purc..

  Accounting methods and inventories

Create a corporate policy designed to minimize inventory shrinkage related to theft, stocking errors, shipping errors, etc., indicating how the policy will be enforced and procedures that may need to be implemented.

  Complete journal entry problem

Complete journal entry problem

  What is the minimum annual operating income

What is the minimum annual operating income that must be generated by this project to achieve the 9% accounting return required by GlenGary

  Prepare one statement of retained earnings for the year

Prepare one statement of retained earnings for the year ended December 31, 2019. As originally reported, retained earnings at December 31, 2018

  Selling price, variable costs, contribution margin

is pretty clear and dry just use the scenario as is. You need to use the selling price, variable costs, contribution margin, and fixed costs to determine the break-even point. Use the appropriate formulas for each.

  Discuss depreciation will be received and paid in cash

All revenue and expenses other than depreciation will be received and paid in cash. Compute the following for this proposal

  Develop a total cost function based on the data

You have been provided with the following information regarding ABC Ltd for the year ended 31 December 2014: Develop a total cost function based on the data

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd