Keon Ltd has two mutually exclusive projects under consideration. Both projects can be considered replacement projects.
The details of the projects are given in the table below.
| Project A | Project B | |||
| Development costs to date | $125,000 | $135,000 | ||
| Life of project | 4 years | 5 years | ||
| Depreciation | Straight line, fully over life of project | Straight line, fully over life of project | ||
| Machine cost | $2.4 million | $3.5million | ||
| Residual | No residual | No residual | ||
| Working capital needs | Injection of $250,000 at beginning of project | One injection only of $500,000 at beginning of project | ||
| Further injection of $150,000 at the end of year 1 | ||||
| Sales | $1.3m for each year of the project | $1.57 m for each year of the project | ||
| Cost of sales | $0.23m for each year of the project | $0.345m for each year of the project | ||
| Other costs | $0.016m for each year of the project | $0.026m for each year of the project | ||
| Finance needs | Yule Ltd would need to borrow $1m for 3 years at 7% p.a. | Yule Ltd would need to borrow $1.1m for 4 years at 7% p.a. | ||
| Tax rate | 25% | 25% | ||
| Discount rate for project | 12.5% | 12.5% |
There is no inflation.
Use NPV analysis to advise Keon Ltd as to which project, if either, should be adopted.
Click on Buy Solution and make payment. All prices shown above are in USD. Payment supported in all currencies. Price shown above includes the solution of all questions mentioned on this page. Please note that our prices are fixed (do not bargain).
After making payment, solution is available instantly.Solution is available either in Word or Excel format unless otherwise specified.
If your question is slightly different from the above question, please contact us at info@myassignmentguru.com with your version of question.