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8. A machine can be purchased for Rs. 50, 000. Machine will be contributing Rs. 12, 000 per year for the next five years. Assuming borrowing cost is 10% per annum. Determine whether machine should be purchased or not?
Most Upvoted Answer
8. A machine can be purchased for Rs. 50, 000. Machine will be contrib...
Analysis of the Problem
- Cost of the machine: Rs. 50,000
- Annual revenue generated by the machine: Rs. 12,000
- Duration of revenue generation: 5 years
- Borrowing cost: 10% per annum
Calculation of the Net Present Value (NPV)
- NPV is the difference between the present value of cash inflows and the present value of cash outflows.
- NPV formula: NPV = (Cash inflow / (1 + r)^n) - Initial investment
- Where r is the discount rate and n is the number of years
- Initial investment: Rs. 50,000
- Cash inflow per year: Rs. 12,000
- Discount rate: 10%
- NPV calculation:
- Year 1: Rs. 10,909.09
- Year 2: Rs. 9,917.80
- Year 3: Rs. 9,016.18
- Year 4: Rs. 8,194.71
- Year 5: Rs. 7,445.19
- Total NPV: Rs. 45,483.97
Conclusion
Based on the NPV calculation, it is clear that the machine should be purchased as the NPV is positive. The machine will generate a total NPV of Rs. 45,483.97 over the next five years, which is higher than the initial investment of Rs. 50,000. The borrowing cost of 10% per annum is also factored into the calculation, which shows that the revenue generated by the machine is enough to cover the borrowing cost and still result in a positive NPV. Therefore, it is recommended to purchase the machine as it will provide a positive return on investment.
Community Answer
8. A machine can be purchased for Rs. 50, 000. Machine will be contrib...
Not purchase machinery
leasing cost = 10÷100+1÷=5 times Gt × 12000=45,489.44
leasing cost = 10÷100+1÷=5 times Gt × 12000=45,489.44
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8. A machine can be purchased for Rs. 50, 000. Machine will be contributing Rs. 12, 000 per year for the next five years. Assuming borrowing cost is 10% per annum. Determine whether machine should be purchased or not?
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8. A machine can be purchased for Rs. 50, 000. Machine will be contributing Rs. 12, 000 per year for the next five years. Assuming borrowing cost is 10% per annum. Determine whether machine should be purchased or not? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about 8. A machine can be purchased for Rs. 50, 000. Machine will be contributing Rs. 12, 000 per year for the next five years. Assuming borrowing cost is 10% per annum. Determine whether machine should be purchased or not? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 8. A machine can be purchased for Rs. 50, 000. Machine will be contributing Rs. 12, 000 per year for the next five years. Assuming borrowing cost is 10% per annum. Determine whether machine should be purchased or not?.
8. A machine can be purchased for Rs. 50, 000. Machine will be contributing Rs. 12, 000 per year for the next five years. Assuming borrowing cost is 10% per annum. Determine whether machine should be purchased or not? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about 8. A machine can be purchased for Rs. 50, 000. Machine will be contributing Rs. 12, 000 per year for the next five years. Assuming borrowing cost is 10% per annum. Determine whether machine should be purchased or not? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 8. A machine can be purchased for Rs. 50, 000. Machine will be contributing Rs. 12, 000 per year for the next five years. Assuming borrowing cost is 10% per annum. Determine whether machine should be purchased or not?.
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