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draveon6925
10.03.2020 •
Business
You have been asked to evaluate two alternatives, X and Y, that may increase plant capacity for manufacturing high-pressure hydraulic hoses. The parameters associated with each alternative have been estimated. Which one should be selected on the basis of a present worth comparison at an interest rate of 15% per year? Why is yours the correct choice?
Alternative X Y
First Cost $-45,000 $-58,000
Maintenance cost, per Year $-8000 $-4000
Salvage Value $2,000 $12,000
Life 5 years 5 years
The present worth of alternative X is( $ )and that of alternative Y is( $ ).
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Ответ:
Present value of Project X is $41990.6
Present value of Project Y is $34605.2
Explanation:
PROJECT X
PARTICULARS YEAR Cost/Value Present Value factor 15% Present Value
Initial Cost 0 45000 1 45000
Maintenance 1- 5 8000 3.352 26816
cost
Annual Depreciation 1-5 (8600) 3.352 (28827.2)
Salvage Value 5 (2000) 0.4971 (994.2)
Present value of cash outflows 41,990.6
PROJECT Y
PARTICULARS YEAR COST/VALUE Present value factor 15% PRESENT VALUE
Initial Cost 0 58000 1 58000
Maintenance 1- 5 4000 3.352 13409
cost
Annual Depreciation 1-5 (9200) 3.352 (30838.4)
Salvage Value 5 12000 0.4971 (5965.2)
Present Value of cash outflow 34605.2
Note: Figures in parenthesis denote cash inflow
Working Notes
Depreciation for project X =
= $8600 p.a
Depreciation for project Y =
= $9200 p.a
Decision: Since present value of cash outflows is lesser for Project Y, it should be taken up.
Ответ: