A Petro. distribution company is considering installing new technology to increase sales and save on delivery...
A Petro. distribution company is considering installing new
technology to increase sales and save on delivery time. The new
system is expected to have a 10-year service life with a salvage
value of SR1,500,000 and produce the following savings and
expenditures: The system purchase price now is SR 500,000 but it
needs additional equipment and facilities in Year 1 at a cost of SR
2,200,000. After installation of new system, it requires training
and testing in year 2 at a cost of SR 200,000. As a result of this
new system, the annual sales will increase by SR 5,000,000 from
year 3 to year 10. This new system requires annual maintenance
expense of SR2,300,000 from year 3 to year 10. Answer the following
questions, If Petro’s MARR (rate of return) is 15%. (6 Marks)
(a) The annual Net cash flows from year 3-9 of are:
(i) 2,300,000 (ii) 5,000,000 (iii) 2,700,000
(b) The discounted Payback period for this project is:
(i) 5.5 Years (ii) 3.5 Years (iii) 6.5 Years
(c) The Net present worth of this project is:
(d) The Net future worth of this project is
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A Petro. distribution company is considering installing new
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