A company is considering two alternative methods
A company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below.
Alternative
I
II
Initial investment
64,000
1,20,000
Annual receipts
50,000
60,000
Annual disbursements
20,000
12,000
Annual depreciation
16,000
20,000
Expected life
4 yrs
6 yrs
Salvage value
0
0
At the end of the useful life of whatever equipment is chosen the product will be discontinued. The company’s tax rate is 50 percent and it cost of capital is 10 percent.a. Calculate the net present value of each alternative.b. Calculate the benefit cost ratio for each alternative.c. If the company is not under capital rationing which alternative should be chosen? Why?
D. If The company is not under capital rationing which alternative should be chosen?
e. Again assuming no capital rational, suppose the company plans to produce the product indefinitely rather than quit when the equipment wears out. Which alternative should the company select? Why?
f. If the company is experiencing severe capital rationing, and plans to terminate production when the equipment wears out, would any of your answers above change?
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more