Assignment # 4

Submitted By:
Fasih Abbas Khan
Registration #:
F2019273035
Submitted To:
Dr. Zaheer Anwar

Question 1 (A)
NPV Analysis of Matrix 750 VS. Delta A390
Ye
Year 0
Sale of old Machine Matrix 750 35,000
Scrap (Opportunity Cost)
Maintenance of Matrix 750 28,000
Depreciation of Matrix (not charged)
Cost of new machine Delta A390 (140,000)
Labor savings
Electricity savings
Maintenance of Delta A390
Interest on Loan
Depreciation of Delta A390
Sales proceeds of Delta A390
Tax Savings from taxes (8,400)
Depreciation Reversal
Total Cash Flows (85,400)
Discount factor @ 12% 1
Discounted Cash Flows (85,400)
NPV (28,293)

As the NPV of this is negative which means that Davidson should not buy n
our old machine.
 Question 1 (A)
ysis of Matrix 750 VS. Delta A390
Years
Year 1 Year 2 Year 3 Year 4 Year 5

(5,000)
7,000 7,000 11,000 7,000 7,000
6,000 6,000 6,000 6,000 6,000

5,250 5,500 5,750 6,000 6,250

4,725 4,800 4,875 4,950 5,025
(2,000) (3,000) (4,000) (5,000) (6,000)
(8,400) (8,400) (8,400) (8,400) (8,400)
(14,000) (14,000) (14,000) (14,000) (14,000)
60,000
428 630 (368) 1,035 4,238
8,000 8,000 8,000 8,000 8,000
7,003 6,530 8,858 5,585 63,113
0.8929 0.7972 0.7099 0.6355 0.5674
6,252 5,206 6,288 3,549 35,812

s that Davidson should not buy new machine. Davidson shall keep
our old machine.
 Question 1 (B)
NPV Analysis of Matrix 750 VS. Delta A3

Year 0
Sale of old Machine Matrix 750 35,000
Scrap (Opportunity Cost)
Maintenance of Matrix 750 28,000
Depreciation of Matrix (not charged)
Cost of new machine Delta A390 (140,000)
Labor savings
Electricity savings
Maintenance of Delta A390
Interest on Loan
Depreciation of Delta A390
Sales proceeds of Delta A390
Tax Savings from taxes (8,400)
Depreciation Reversal
Total Cash Flows (85,400)
Discount factor @ 11% 1
Discounted Cash Flows (85,400)
NPV (14,312)

As the NPV of this is negative which means that Davidson should not buy new ma
 Question 1 (B)
V Analysis of Matrix 750 VS. Delta A390
Years
Year 1 Year 2 Year 3 Year 4 Year 5

(5,000)
7,000 7,000 11,000 7,000 7,000
6,000 6,000 6,000 6,000 6,000

5,250 5,500 5,750 6,000 6,250

4,725 4,800 4,875 4,950 5,025
(2,000) (3,000) (4,000) (5,000) (6,000)
(8,400) (8,400) (8,400) (8,400) (8,400)
(14,000) (14,000) (14,000) (14,000) (14,000)
80,000
428 630 (368) 1,035 4,238
8,000 8,000 8,000 8,000 8,000
7,003 6,530 8,858 5,585 83,113
0.9009 0.8116 0.7312 0.6587 0.5935
6,309 5,300 6,477 3,679 49,324

at Davidson should not buy new machine. Davidson shall keep our old machine.
 Question 1 (C)
NPV Analysis of Matrix 750 VS. De

Year 0
Sale of old Machine Matrix 750 35,000
Scrap (Opportunity Cost)
Maintenance of Matrix 750 28,000
Depreciation of Matrix (not charged)
Cost of new machine Delta A390 (140,000)
Labor savings
Electricity savings
Maintenance of Delta A390
Interest on Loan
Depreciation of Delta A390
Sales proceeds of Delta A390
Tax Savings from taxes (8,400)
Depreciation Reversal
Total Cash Flows (85,400)
Discount factor @ 11% 1
Discounted Cash Flows (85,400)
NPV (23,416)

As the NPV of this is negative which means that Davidson should not buy ne
 Question 1 (C)
NPV Analysis of Matrix 750 VS. Delta A390
Years
Year 1 Year 2 Year 3 Year 4 Year 5

(5,000)
7,000 7,000 11,000 7,000 7,000
6,000 6,000 6,000 6,000 6,000

5,250 5,500 5,750 6,000 6,250

4,725 4,800 4,875 4,950 5,025
(1,000) (2,000) (3,000) (4,000) (5,000)
(8,400) (8,400) (8,400) (8,400) (8,400)
(14,000) (14,000) (14,000) (14,000) (14,000)
60,000
128 330 (668) 735 4,238
8,000 8,000 8,000 8,000 8,000
7,703 7,230 9,558 6,285 64,113
0.9009 0.8116 0.7312 0.6587 0.5935
6,939 5,868 6,988 4,140 38,048

s that Davidson should not buy new machine. Davidson shall keep our old machine.
 Question 1 (D)
NPV Analysis of Matrix 750 V

Year 0
Sale of old Machine Matrix 750 35,000
Scrap (Opportunity Cost)
Maintenance of Matrix 750 28,000
Depreciation of Matrix (not charged)
Cost of new machine Delta A390 (140,000)
Labor savings
Electricity savings
Maintenance of Delta A390
Interest on Loan
Depreciation of Delta A390
Sales proceeds of Delta A390
Tax Savings from taxes (8,400)
Depreciation Reversal
Total Cash Flows (85,400)
Discount factor @ 12% 1
Discounted Cash Flows (85,400)
NPV (14,252)

As the NPV of this is negative which means that Davidson should not bu
 Question 1 (D)
V Analysis of Matrix 750 VS. Delta A390
Years
Year 1 Year 2 Year 3 Year 4 Year 5

(5,000)
7,000 7,000 11,000 7,000 7,000
6,000 6,000 6,000 6,000 6,000

5,250 5,500 5,750 6,000 6,250

4,725 4,800 4,875 4,950 5,025
(1,000) (2,000) (3,000) (4,000) (5,000)
(8,400) (8,400) (8,400) (8,400) (8,400)
(14,000) (14,000) (14,000) (14,000) (14,000)
80,000
128 330 (668) 735 4,238
8,000 8,000 8,000 8,000 8,000
7,703 7,230 9,558 6,285 84,113
0.8929 0.7972 0.7099 0.6355 0.5674
6,877 5,764 6,785 3,994 47,728

at Davidson should not buy new machine. Davidson shall keep our old machine.
 Question #2

As we can see in assignment 3 the answer of NPV was also negativ

NPV is negative but in previous assignment the answer was a hi
negativity a higher time was required but while considering the optio
so it can be covered more quickly as compared to the previous answ
machine or go with the older one so he shall prefer going with the o
of the older machine is much higher as compared to the new machi
prefer to go with the older machine but if he purchases a new mach
the productivity of the new machine is much higher and the mainten
much lower, it only requires a good investment in the beginning du
machine will be operational and will be producing more as compare
negative value of NPV. Davidson will be able to reduce its operationa
produce more, sell more and earn more which will increase his cas
inflow turning the NPV to positive for the long term.

Similarly, in the assignment when we increased the sales proceeds o

decreased to (14,312). So, I would suggest Mr. Davidson to purcha
because the productivity of new machine is much higher which can h
will ultimately decrease the negative NPV value and will turn it to
generating the profits for Davidson in long term.
 Question #2

of NPV was also negative and similarly in all the options in the assignment 4 the
ent the answer was a higher negative amount which means that to cover the
while considering the option D of assignment 4 it gives a lesser negative amount
ared to the previous answer. So, if Davidson has to chose between buying a new
all prefer going with the older machine but the maintenance cost and safety cost
mpared to the new machine. Apparently by viewing the NPV value Davidson will
e purchases a new machine, it will be more profitable in the longer run because
h higher and the maintenance and miscellaneous costs of the new machine are
ment in the beginning due to which NPV value is in negative but when the new
ducing more as compared to the older machine so it will be easily covering the
e to reduce its operational costs by installing the new machine and will be able to
hich will increase his cash inflows which will balance its cash outflow and cash
ng term.

ased the sales proceeds of Delta Machine to 80,000 the negative NPV drastically
t Mr. Davidson to purchase new machine despite of having negative NPV value
much higher which can help Davidson to increase his sales proceeds and which
value and will turn it to positive in the long run balancing the cash flows or
erm.