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A machine can be purchased for 50000 machine can contribute 12000 per year for next five years assume borrowing cost is 10 per annum determine whether machine should be purchased or not?
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A machine can be purchased for 50000 machine can contribute 12000 per ...
Introduction:
The decision to purchase a machine involves comparing the cost of the machine with its expected benefits. In this case, we need to determine whether the machine should be purchased or not.
Cost of the Machine:
The cost of the machine is 50000.
Expected Benefits:
The machine is expected to contribute 12000 per year for the next five years.
Borrowing Cost:
The borrowing cost is 10 per annum.
Calculation of Net Present Value (NPV):
To determine whether the machine should be purchased or not, we need to calculate the net present value (NPV) of the machine. NPV is the difference between the present value of the expected benefits and the present value of the cost of the machine.
The formula for calculating NPV is:
NPV = PV(Benefits) - PV(Cost)
Where PV is the present value.
To calculate PV(Benefits), we need to calculate the present value of the expected benefits.
PV(Benefits) = 12000 * [(1 - (1 + 10%)^-5) / 10%] = 48162.53
To calculate PV(Cost), we need to calculate the present value of the cost of the machine.
PV(Cost) = 50000 / (1 + 10%)^1 = 45454.55
NPV = PV(Benefits) - PV(Cost) = 2712.98
Decision:
The NPV of the machine is positive, which means that the benefits of purchasing the machine are greater than the cost of the machine. Therefore, the machine should be purchased.
Conclusion:
Based on the calculation of NPV, it is recommended that the machine should be purchased as the benefits of purchasing the machine are greater than the cost of the machine.
The decision to purchase a machine involves comparing the cost of the machine with its expected benefits. In this case, we need to determine whether the machine should be purchased or not.
Cost of the Machine:
The cost of the machine is 50000.
Expected Benefits:
The machine is expected to contribute 12000 per year for the next five years.
Borrowing Cost:
The borrowing cost is 10 per annum.
Calculation of Net Present Value (NPV):
To determine whether the machine should be purchased or not, we need to calculate the net present value (NPV) of the machine. NPV is the difference between the present value of the expected benefits and the present value of the cost of the machine.
The formula for calculating NPV is:
NPV = PV(Benefits) - PV(Cost)
Where PV is the present value.
To calculate PV(Benefits), we need to calculate the present value of the expected benefits.
PV(Benefits) = 12000 * [(1 - (1 + 10%)^-5) / 10%] = 48162.53
To calculate PV(Cost), we need to calculate the present value of the cost of the machine.
PV(Cost) = 50000 / (1 + 10%)^1 = 45454.55
NPV = PV(Benefits) - PV(Cost) = 2712.98
Decision:
The NPV of the machine is positive, which means that the benefits of purchasing the machine are greater than the cost of the machine. Therefore, the machine should be purchased.
Conclusion:
Based on the calculation of NPV, it is recommended that the machine should be purchased as the benefits of purchasing the machine are greater than the cost of the machine.
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A machine can be purchased for 50000 machine can contribute 12000 per ...
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A machine can be purchased for 50000 machine can contribute 12000 per year for next five years assume borrowing cost is 10 per annum determine whether machine should be purchased or not?
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A machine can be purchased for 50000 machine can contribute 12000 per year for next five years assume 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 A machine can be purchased for 50000 machine can contribute 12000 per year for next five years assume 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 A machine can be purchased for 50000 machine can contribute 12000 per year for next five years assume borrowing cost is 10 per annum determine whether machine should be purchased or not?.
A machine can be purchased for 50000 machine can contribute 12000 per year for next five years assume 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 A machine can be purchased for 50000 machine can contribute 12000 per year for next five years assume 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 A machine can be purchased for 50000 machine can contribute 12000 per year for next five years assume borrowing cost is 10 per annum determine whether machine should be purchased or not?.
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