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Assignment - 2

This document presents four questions regarding equipment purchase alternatives. Question 1 provides cash flow details for two alternatives and asks to identify the most economical using the present worth method at 10% interest. Question 2 asks to also analyze the alternatives from question 1 using future worth and annual worth methods. Question 3 provides cash flow details for two construction equipment alternatives and asks to identify the most economical using present worth at 11% interest. Question 4 provides cash flow details for two universal testing machine alternatives and asks to identify the most economical using future worth at 9% interest.

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sanjog kshetri
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105 views

Assignment - 2

This document presents four questions regarding equipment purchase alternatives. Question 1 provides cash flow details for two alternatives and asks to identify the most economical using the present worth method at 10% interest. Question 2 asks to also analyze the alternatives from question 1 using future worth and annual worth methods. Question 3 provides cash flow details for two construction equipment alternatives and asks to identify the most economical using present worth at 11% interest. Question 4 provides cash flow details for two universal testing machine alternatives and asks to identify the most economical using future worth at 9% interest.

Uploaded by

sanjog kshetri
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment – 2

Q.1) There are two alternatives for purchasing a piece of equipment. The details of cash flow of
both alternatives are as follows;

Alternative-1: Initial purchase cost = Rs.12,00,000, Annual operating and maintenance cost =
Rs.30,000, Expected salvage value = Rs.2,60,000, Useful life = 8 years.

Alternative-2: Initial purchase cost = Rs.10,50,000, Annual operating and maintenance cost =
Rs.55,000, Expected salvage value = Rs.2,30,000, Useful life = 8 years.

Using present worth method, find out which alternative should be selected, if interest rate is 10%
per year.

Q.2) Using the information from the previous question (Q.1), find out the most economical
alternative using future worth method and annual worth method.

Q.3) A construction company is planning to purchase a piece of construction equipment from the
available two alternatives. The details of cash flow of both the alternatives are as follows;

Alternative-1: Initial purchase price = Rs.42,50,000, Annual operating cost Rs.75,000 at the end
of 1st year and increasing by Rs.2000 in the subsequent years till the end of useful life, Annual
income = Rs.1,60,000, Salvage value = Rs.9,45,000, Useful life = 10 years.

Alternative-2: Initial purchase price = Rs.39,00,000, Annual operating cost Rs.95,000 for first 4
years and increasing by Rs.4000 in the successive years till the end of useful life, Annual income
= Rs.1,30,000, Expected salvage value = Rs.8,20,000, Useful life = 10 years.

Using present worth method, find out which alternative should be selected, if the rate of interest
is 11% per year.

Q.4) For purchasing a universal testing machine, two options are available. The cash flow details
of two options are presented below.

Option-1: Initial purchase price = Rs.17,00,000, Annual operating cost = Rs.45,000, Expected
salvage value = Rs.3,70,000, Useful life = 6 years.

Option-2: Initial purchase price = Rs.21,00,000, Annual operating cost = Rs.30,000, Expected
salvage value = Rs.4,50,000, Useful life = 12 years.

Using future worth method, find out the most economical alternative at the interest rate of 9%
per year.

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