ACCT – MedCo is a large manufacturing company



Hand-in Assignment Question 1:
MedCo is a large manufacturing company, currently using a large printing press in its operations and is considering two replacements: the PDX341 and PDW581. The PDX341 costs £500,000 and has annual maintenance costs of £10,000 for the first five years and £15,000 for the next five years. After 10 years, the PDX341 will be scrapped (salvage value is zero). In contrast, the PDW581 can be acquired for £50,000 and requires maintenance of £30,000 a year for its 10-year life. The salvage value of the PDW581 is expected to be zero in 10 years.

Complete the following:
• Assuming that MedCo must replace their current printing press (it has stopped
functioning), has a 10% cost of capital and all cash flows are after tax, which replacement press is the more appropriate as calculated by using the NPV approach

Hand-in Assignment Question 2:
ABC clothing company is considering opening three retail stores in Manchester. It requires a £600,000 initial investment and expects to make £120,000 per year in the first four years and £240,000 every year for the following three years.
Complete the following:
• What is the payback period?
• One of the disadvantages of the payback method is that the time value of money is not considered when you calculate the payback period.

Please read the article below:
If the discount rate is 8%, what is the discounted payback period?


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