Question a-Grey Ltd plans to buy a new machine at the beginning of the year, to meet expected demand for a new product X
Posted: Wed May 04, 2022 6:22 am
Question a-Grey Ltd plans to buy a new machine at the beginning
of the year, to meet expected demand for a new product X. This
machine will cost €450,000 and last for six years at the end of
which time its scrap (residual) value will be €35,000. The company
expects the demand for product X to be 42,000 units in year 1 and
increasing by 6% over the next six years. The selling price for
product X is expected to be €16.50 per unit, increasing by 4% per
year and the variable cost of production is expected to be €7.50
per unit, increasing by 3%. Annual fixed production overheads are
€37,500 per year, increasing by 6% per year. The cost of capital is
8.5%., the annual tax rate is 12.5% paid one year in arrears, WDA =
20% on a reducing balance basis. Required Calculate the Net Present
Value of buying the new machine and state if the investment is
accepted or not (11 marks)
Question b-Explain the factors to be considered when deciding to
make an investment (2 marks)
Question c-Larnaca Ltd trades a product which has purchase price
€125 per unit, its annual demand is 5.000 units the ordering cost
is €500 per unit and the annual holding cost is 15% of the purchase
price. The economic order quantity is 600 units. Required Advise if
the company must order 1.200 units at a time in order to secure an
9% discount (2 marks)
Question d-Famagusta Ltd has an inventory management policy
which involves ordering 40.000 units when the inventory level falls
to 10.000 units. Forecast demand to meet production requirements
during the next year is 300.000 units. Demand is constant
throughout the year (52 weeks). Orders are received 3 weeks after
being placed with the supplier. Required Calculate the average
inventory level. (2 marks)
of the year, to meet expected demand for a new product X. This
machine will cost €450,000 and last for six years at the end of
which time its scrap (residual) value will be €35,000. The company
expects the demand for product X to be 42,000 units in year 1 and
increasing by 6% over the next six years. The selling price for
product X is expected to be €16.50 per unit, increasing by 4% per
year and the variable cost of production is expected to be €7.50
per unit, increasing by 3%. Annual fixed production overheads are
€37,500 per year, increasing by 6% per year. The cost of capital is
8.5%., the annual tax rate is 12.5% paid one year in arrears, WDA =
20% on a reducing balance basis. Required Calculate the Net Present
Value of buying the new machine and state if the investment is
accepted or not (11 marks)
Question b-Explain the factors to be considered when deciding to
make an investment (2 marks)
Question c-Larnaca Ltd trades a product which has purchase price
€125 per unit, its annual demand is 5.000 units the ordering cost
is €500 per unit and the annual holding cost is 15% of the purchase
price. The economic order quantity is 600 units. Required Advise if
the company must order 1.200 units at a time in order to secure an
9% discount (2 marks)
Question d-Famagusta Ltd has an inventory management policy
which involves ordering 40.000 units when the inventory level falls
to 10.000 units. Forecast demand to meet production requirements
during the next year is 300.000 units. Demand is constant
throughout the year (52 weeks). Orders are received 3 weeks after
being placed with the supplier. Required Calculate the average
inventory level. (2 marks)