## Description

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 Â£500,000 and has annual maintenance costs of Â£10,000 for the first five years and Â£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 Â£50,000 and requires maintenance of Â£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:

â€¢ 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

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 Â£500,000 and has annual maintenance costs of Â£10,000 for the first five years and Â£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 Â£50,000 and requires maintenance of Â£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:

â€¢ 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 Â£600,000 initial investment and expects to make Â£120,000 per year in the first four years and Â£240,000 every year for the following three years.

Complete the following:

â€¢ What is the payback period?

â€¢ 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:

http://bizfinance.about.com/od/Capital-Budgeting/a/discounted-payback-period.htm

If the discount rate is 8%, what is the discounted payback period?

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