Question:Elsies Limited is considering the purchase of a machine to manufacture some of the spare parts for the catering equipmentduring 2025. The company desires a minimum required rate of return of 12%. The machine will cost R2 000 000 plus R400 000for installation and is predicted to have a useful life of five years. A salvage value of R100 000 is estimated. The machine isexpected to generate cash inflows of R800 000 per year but will require the employment of two new machine operators at R100000 per year for each operator, and it will require maintenance and repairs averaging R40 000 per year. Depreciation will becalculated using the straight-line method. Benefit Cost Ratio (expressed to two decimal places).

Questions:Refer to the investment opportunity for 2025 and calculate the following. (Ignore taxes.)…

Answered: Question: Elsies Limited is considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 12P

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Question: Elsies Limited is considering the purchase of a machine to manufacture some of the spare parts for the catering equipment during 2025. The company desires a minimum required rate of return of 12%. The machine will cost R2 000 000 plus R400 000 for installation and is predicted to have a useful life of five years. A salvage value of R100 000 is estimated. The machine is expected to generate cash inflows of R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will require maintenance and repairs averaging R40 000 per year. Depreciation will be calculated using the straight-line method. Calculate Benefit Cost ratio(expressed to two decimal places)
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