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A Machine with useful life 7 years cost 10000 while another machine with useful life 5 years cost 8000 the first machine saves labour expenses of rs1900 annualy and the second one saves 2200 annually determine the preferred course of action assume cost of borrowing as 10% compounded pa?
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A Machine with useful life 7 years cost 10000 while another machine wi...
Analysis:

To determine the preferred course of action, we need to calculate the net present value (NPV) of both machines. We can use the following formula to calculate NPV:

NPV = -Initial cost + present value of cash inflows

To calculate the present value of cash inflows, we need to discount the annual savings at a rate of 10%.

Calculation:

Machine 1:

Initial cost = Rs 10,000
Annual savings = Rs 1,900
Useful life = 7 years

NPV = -10,000 + (1,900 / 0.1) x ((1 - (1 / 1.1^7)) / (1 - 1 / 1.1))

NPV = -10,000 + 10,596.87

NPV = 596.87

Machine 2:

Initial cost = Rs 8,000
Annual savings = Rs 2,200
Useful life = 5 years

NPV = -8,000 + (2,200 / 0.1) x ((1 - (1 / 1.1^5)) / (1 - 1 / 1.1))

NPV = -8,000 + 9,648.74

NPV = 1,648.74

Conclusion:

The NPV of Machine 2 is higher than that of Machine 1. Therefore, the preferred course of action is to purchase Machine 2.
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A Machine with useful life 7 years cost 10000 while another machine with useful life 5 years cost 8000 the first machine saves labour expenses of rs1900 annualy and the second one saves 2200 annually determine the preferred course of action assume cost of borrowing as 10% compounded pa?
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A Machine with useful life 7 years cost 10000 while another machine with useful life 5 years cost 8000 the first machine saves labour expenses of rs1900 annualy and the second one saves 2200 annually determine the preferred course of action assume cost of borrowing as 10% compounded pa? 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 A Machine with useful life 7 years cost 10000 while another machine with useful life 5 years cost 8000 the first machine saves labour expenses of rs1900 annualy and the second one saves 2200 annually determine the preferred course of action assume cost of borrowing as 10% compounded pa? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A Machine with useful life 7 years cost 10000 while another machine with useful life 5 years cost 8000 the first machine saves labour expenses of rs1900 annualy and the second one saves 2200 annually determine the preferred course of action assume cost of borrowing as 10% compounded pa?.
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