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2 years ago

The following costs and useful life data are associated with two new machines being considered at Arun Tech Inc.

Business

2 answers:

Sidana [21]2 years ago

6 0

Answer:

Machine B has a higher NPV therefore should be produced

Explanation:

The machine with the higher Net Present Value (NPV) should be produced .

NPV of Machine A

PV of cash flow

PV of annual profit = A × (1- (1+r)^*(-n)/r

A- 92,000, n- 11, r- 12%

PV = 92,000 × (1- (1.12^(-11)/0.12 = 546268.32

PV of salvage value = 13,000× 1.12^(-11)= 3737.189

NPV = 546268.320 + 3737.189 -250,000 = $300,005.50

NPV of Machine B

A- 103,00, n- 19, r- 12%

PV = 103,000 × (1- (1.12^(-19)/0.12= 758675.0165

Pv of salvage value = 26000× 1.12^(-19)= 3018.776199

NPV =758675.0165 + 3018.77 -460,000 = $301,693.79

Machine B has a higher NPV , therefore should be produced.

xenn [34]2 years ago

6 0

Answer:

While Machine B has an slightly higher net present value his annual worth is much lower than machine A therefore, the company should purchase machine A which yield better annual return

Machine A

Net Present Value: 300,005.00

Anual worth $ 50,525.463

Machine B

Net Present Value: 301.693,8‬

Anual worth $ 40,958.857

Explanation:

We calculate the present value of each machine

and also, the annual worth of each one to get a fair comparison considering their useful life differ

Machine A

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 92,000.00

time 11

rate 0.12

$92000 \times \frac{1-(1+0.12)^{-11} }{0.12} = PV\\$

PV $546,268.3202

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity $13,000.00

time 11.00

rate 0.12000

$\frac{13000}{(1 + 0.12)^{11} } = PV$

PV 3,737.1894

Net Present Value:

$546,268.32 + $3,737.19 - $250,000 = 300.005,51‬

Annual worth:

$PV \div \frac{1-(1+r)^{-time} }{rate} = C\\$

PV 300,005.00

time 11

rate 0.12

$300005 \div \frac{1-(1+0.12)^{-11} }{0.12} = C\\$

C $ 50,525.463

Machine B

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 103,000.00

time 19

rate 0.12

$103000 \times \frac{1-(1+0.12)^{-19} }{0.12} = PV\\$

PV $758,675.0165

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity $26,000.00

time 19.00

rate 0.12000

$\frac{26000}{(1 + 0.12)^{19} } = PV$

PV 3,018.7762

Net present value

$758,675.02 + $3,018.78 - 460,000 = 301.693,8‬

Annual worth

$PV \div \frac{1-(1+r)^{-time} }{rate} = C\\$

PV 301,693.80

time 19

rate 0.12

$301693.8 \div \frac{1-(1+0.12)^{-19} }{0.12} = C\\$

C $ 40,958.857

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Debit CreditCash $2,870 Accounts Receivable $3,231 Supplies 800 Equipment 3,800 Accounts Payable 2,666 Unearned Service Revenue

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TRIAL BALANCE

Assets:

Cash $2,920

Accounts Receivable $3,051

Supplies $300

Equipment $4,300

Total assets 10,571

Liabilities + Stockholders' Equity

Accounts Payable $2,200

Unearned Service Revenue $875

Common Stock $6,000

Retained Earnings $1,496

Total liabilities + stockholders' equity 10,571

Explanation:

1.Cash received from a customer on account was debited for $570, and Accounts Receivable was credited for the same amount. The actual collection was for $750.

Dr Cash 180

Cr Accounts receivable 180

2. The purchase of a computer printer on account for $500 was recorded as a debit to Supplies for $500 and a credit to Accounts Payable for $500.

Dr Equipment 500

Cr Supplies 500

3. Services were performed on account for a client for $890. Accounts Receivable was debited for $890 and Service Revenue was credited for $89.

Dr Accounts receivable 0

Cr Service revenue 801

4. A payment of $65 for telephone charges was recorded as a debit to Office Expense for $65 and a debit to Cash for $65.

Dr Office expense 0

Cr Cash 130

5. When the Unearned Service Revenue account was reviewed, it was found that service revenue amounting to $325 was performed prior to June 30 (related to Unearned Service Revenue).

Dr Unearned service revenue 325

Cr Service revenue 325

6. A debit posting to Salaries and Wages Expense of $670 was omitted.

Dr Wages expense 670

Cr Cash 0

7. A payment on account for $206 was credited to Cash for $206 and credited to Accounts Payable for $260.

Dr Accounts payable 466

Cr Cash 0

8. A dividend of $575 was debited to Salaries and Wages Expense for $575 and credited to Cash for $575.

Dr Retained earnings 575

Cr Wages expense 575

Service Revenue 2,380 + 801 + 325 = 3,506

Salaries and Wages Expense 3,400 + 670 - 575 = 3,495

Office Expense 940

net loss -929

Cash $2,870 + 180 - 130 = 2,920

Accounts Receivable $3,231 - 180 = 3,051

Supplies 800 - 500 = 300

Equipment 3,800 + 500 = 4,300

Accounts Payable 2,666 - 466 = 2,200

Unearned Service Revenue 1,200 - 325 = 875

Common Stock 6,000

Retained Earnings 3,000 - 575 - 929 = 1,496

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