Amna Strawberry Farm has is located in Cameron Highland. The farm has always hire part-time workers to pick strawberries. Amna, the owner of the farm just found out about a strawberry picking machine that is being purchased by many fruit farms. Amna is now considering whether the picking machine would be profitable investment for her farm. For that purpose, she has gathered the following information. i. Currently the farm is paying RM45,000 per year to part-time workers to pick the strawberries. ii. The picking machine would cost RM88,000 and it would have an estimated 12-year useful life. The farm applies straight-line method of depreciation and consider salvage value of RM4,000 of the picking machine. iii. Annual cost related to the picking machine would be: cost of operator and assistant RM15,000 insurance RM300 fuel RM2,800 maintenance RM4,000 Required: a. Calculate the annual savings in cash operating costs that would be realized from the picking machine. b. Compute the payback period of the picking machine. If Amna Strawberry Farm aimed for the payback period of 5 vears or less, would the picking machine be purchased.

Amna Strawberry Farm has is located in Cameron Highland. The farm has always hire part-time workers to pick strawberries. Amna, the owner of the farm just found out about a strawberry picking machine that is being purchased by many fruit farms. Amna is now considering whether the picking machine would be profitable investment for her farm. For that purpose, she has gathered the following information. i. Currently the farm is paying RM45,000 per year to part-time workers to pick the strawberries. ii. The picking machine would cost RM88,000 and it would have an estimated 12-year useful life. The farm applies straight-line method of depreciation and consider salvage value of RM4,000 of the picking machine. iii. Annual cost related to the picking machine would be: cost of operator and assistant RM15,000 insurance RM300 fuel RM2,800 maintenance RM4,000 Required: a. Calculate the annual savings in cash operating costs that would be realized from the picking machine. b. Compute the payback period of the picking machine. If Amna Strawberry Farm aimed for the payback period of 5 vears or less, would the picking machine be purchased.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 13P

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