Answered: application of the concept of NPV

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4E: Determine cash flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make...

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Question

The cash flow after taxes for two machineries A and B are given in the table below.
Year wise Cash flow A B
1 22000 7000
2 25000 5000
3 28000 4500
4 5000 28000
5 4500 25000
6 7000 22000
The estimated useful life of the machines is 6 years and the discount rate is 11%. The
cost of each machine is Rs60000

1. Discuss the steps of application of the concept of NPV to the given situation.
Determine the NPV of Machine A .

2. Determine the NPV of the Machine B. Discuss, which machinery should be
acquired and why?

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