Carbide Chemical Company is considering the replacement of two old machines with a new, more efficient machine.

Carbide Chemical Company is considering the replacement of two old machines with a new, more efficient machine.

 

 

 

 

answer:

1- year cash flow 2- year cash flow cumulative cash flow
0 204424 0 204424
1 86890 1 86890 86890
2 106474 2 106474 193364
3 91612 3 91612 11060 amount to be recovered in year 3
4 84801 4 84801
5 84801 5 84801
6 0 6 0
7 0 7 0
8 0 8 0
average profit 56822.25
initial investment 204424 pay back period year before the final recovery+ amount left to be recovered in year 3 / year 3 cash flow 2.120727 years
Accounting rate of return average profit/initial investment)*100 27.79627147
3- year cash flow present value factor at 14% = 1/(1+r)^n PRESENT VALUE FACTOR* CASH FLOW
0 204424
1 86890 0.877193 76219.3
2 106474 0.7694675 81928.29
3 91612 0.6749715 61835.49
4 84801 0.5920803 50209
5 84801 0.5193687 44042.98
6 0 0.4555865 0
7 0 0.3996373 0
8 0 0.3505591 0
SUM OF PRESENT VALUE OF CASH FLOW 314235.1
LESS CASH OUTFLOW 204424
NPV 109811.1
PROFITABILITY INDEX SUM OF PRESENT VALUE OF CASH INFLOW/CASH OUTFLOW 1.537173
YES THE PROJECT IS ACCEPTABLE

 

 

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