In this, we have considered the present value of all methods and select the best among them.
First option
Interest rate=9%
Remaining life=15 years
Annual maintenance cost=3500000
Present value factor=r1−(1+r)−n=(0.09)1−(1.09)−nr=8.0606884299
Present value of cost= Annual cost x present value factor =3500000∗8.0606884299
Net Present Value of option1=-Shs 28212409.504
Investment=Cost of modern equipment - selling price of old equipment =7000000−2000000=$5000000
Annual saving =30000000 per year
Present value of annual savings =8.0606884299∗3000000=$24182065.29
Present value of salvage value
(1+r)nScrap value=(1.09)15500000=$137269.02
Net present value of second option= Present value of the salvage value
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