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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
- a)Should be purchased
- b)Should not be purchased
- c)Can’t say about purchase
- d)none of the above
Correct answer is option 'B'. Can you explain this answer?
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A machine can be purchased for Rs. 50, 000. Machine will be contributi...
Be purchased or not enough information is given to determine
To determine whether the machine should be purchased or not, we need to calculate the present value of the cash inflows (contributions) and compare it with the cost of the machine.
Present value of cash inflows:
PV = C x [((1 + r)^n - 1) / (r x (1 + r)^n)]
where PV is the present value, C is the cash inflow per year, r is the discount rate (borrowing cost), and n is the number of years.
PV = 12,000 x [((1 + 0.1)^5 - 1) / (0.1 x (1 + 0.1)^5)]
PV = 12,000 x 3.7908
PV = Rs. 45,489.60
The present value of the cash inflows is Rs. 45,489.60.
Cost of the machine = Rs. 50,000
Since the present value of the cash inflows (Rs. 45,489.60) is less than the cost of the machine (Rs. 50,000), it is not profitable to purchase the machine. Therefore, the answer is (b) should not be purchased.
To determine whether the machine should be purchased or not, we need to calculate the present value of the cash inflows (contributions) and compare it with the cost of the machine.
Present value of cash inflows:
PV = C x [((1 + r)^n - 1) / (r x (1 + r)^n)]
where PV is the present value, C is the cash inflow per year, r is the discount rate (borrowing cost), and n is the number of years.
PV = 12,000 x [((1 + 0.1)^5 - 1) / (0.1 x (1 + 0.1)^5)]
PV = 12,000 x 3.7908
PV = Rs. 45,489.60
The present value of the cash inflows is Rs. 45,489.60.
Cost of the machine = Rs. 50,000
Since the present value of the cash inflows (Rs. 45,489.60) is less than the cost of the machine (Rs. 50,000), it is not profitable to purchase the machine. Therefore, the answer is (b) should not be purchased.
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A machine can be purchased for Rs. 50, 000. Machine will be contributi...
50000 thousand ki machine hai aur har saal 12000 pay krne hai next 5 years tak so 5 years 12000 pay krne par pure 60000 pay krne hoge to machine lete wakt 50000 thousand aur machine lene ke baad aur 60000 thousand pay krne hai to hume total machine ke liye 1 ,63000 pay krne hoge kyouki interest hai 10 percent
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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 nota)Should be purchasedb)Should not be purchasedc)Can’t say about purchased)none of the aboveCorrect answer is option 'B'. Can you explain this answer?
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