In this question, we have to calculate the depreciation and the book value at the end of four years. The calculation along with the data is mentioned below, using Straight Line method
|
Depreciation Straight Line Method |
|
|
|
|
|
Cost |
26,000 |
|
Life |
15 |
|
Salvage Value |
2000 |
|
|
|
|
End of 4 Years Depreciation |
6400 |
|
|
|
|
Book Value |
19,600 |
|
|
|
We have to calculate the depreciation and the book value at the end of four years. The calculation along with the data is mentioned below, using sum of year’s digit method
|
Sum of Years Digit Method |
|
|
|
|
|
Cost |
26,000 |
|
Life |
15 |
|
Salvage Value |
2000 |
|
Sum of Years |
120 |
|
1st year % |
0.125 |
|
2nd year % |
0.12 |
|
3rd year % |
0.11 |
|
4th year % |
0.1 |
|
|
|
|
1st Year Depreciation |
3000 |
|
1st Year Depreciation |
2800 |
|
1st Year Depreciation |
2600 |
|
1st Year Depreciation |
2400 |
|
|
|
|
End of 4 Years Depreciation |
10800 |
|
|
|
|
Book Value |
15,200 |
|
|
|
Double declining method depreciation computation is mentioned below,
|
Double Declining Balance Method |
|
|
|
|
|
Cost |
26,000 |
|
Life |
15 |
|
Salvage Value |
2000 |
|
Depreciation Total |
1600 |
|
Double Declining % |
0.133 |
|
1st year |
3200 |
|
2nd Year |
2773.3 |
|
3rd Year |
2403.6 |
|
4th Year |
2083.08 |
|
|
|
|
End of 4 Years Depreciation |
10459.97 |
|
|
|
|
Book Value |
15,540 |
Ans-2)
NPV and IRR analysis of Type A Project is mentioned below,
|
Type A |
||
|
Life = 12 Years |
Inflow of Earnings |
Net Present Value |
|
|
|
|
|
1 |
-220,000 |
|
|
2 |
56,800 |
51636.36 |
|
3 |
56,800 |
46942.15 |
|
4 |
56,800 |
42674.68 |
|
5 |
56,800 |
38795.16 |
|
6 |
56,800 |
35268.33 |
|
7 |
56,800 |
32062.12 |
|
8 |
56,800 |
29147.38 |
|
9 |
56,800 |
26497.62 |
|
10 |
56,800 |
24088.74 |
|
11 |
56,800 |
21898.86 |
|
12 |
56,800 |
19908.05 |
|
|
|
368919.47 |
|
|
|
|
|
Project Feasibility Positive NPV |
|
148919.5 |
|
IRR |
|
23% |
NPV and IRR analysis of Type B Project is mentioned below,
|
Type B |
||
|
Life = 12 Years |
Inflow of Earnings |
Net Present Value |
|
|
|
|
|
1 |
-300,000 |
|
|
2 |
60,120 |
54654.55 |
|
3 |
60,120 |
49685.95 |
|
4 |
60,120 |
45169.05 |
|
5 |
60,120 |
41062.77 |
|
6 |
60,120 |
37329.79 |
|
7 |
60,120 |
33936.17 |
|
8 |
60,120 |
30851.07 |
|
9 |
60,120 |
28046.42 |
|
10 |
60,120 |
25496.75 |
|
11 |
60,120 |
23178.86 |
|
12 |
60,120 |
21071.69 |
|
|
|
390483.07 |
|
|
|
|
|
Project Feasibility Positive NPV |
|
90483.1 |
|
IRR |
|
16% |
NPV and IRR analysis of Type C Project is mentioned below,
|
Type C |
||
|
Life = 24 Years |
Inflow of Earnings |
Net Present Value |
|
|
|
|
|
1 |
-550,000 |
|
|
2 |
84,600 |
76909.09 |
|
3 |
84,600 |
69917.36 |
|
4 |
84,600 |
63561.23 |
|
5 |
84,600 |
57782.94 |
|
6 |
84,600 |
52529.94 |
|
7 |
84,600 |
47754.49 |
|
8 |
84,600 |
43413.18 |
|
9 |
84,600 |
39466.52 |
|
10 |
84,600 |
35878.66 |
|
11 |
84,600 |
32616.96 |
|
12 |
84,600 |
29651.78 |
|
13 |
84,600 |
26956.17 |
|
14 |
84,600 |
24505.61 |
|
15 |
84,600 |
22277.82 |
|
16 |
84,600 |
20252.57 |
|
17 |
84,600 |
18411.42 |
|
18 |
84,600 |
16737.66 |
|
19 |
84,600 |
15216.05 |
|
20 |
84,600 |
13832.78 |
|
21 |
84,600 |
12575.25 |
|
22 |
84,600 |
11432.05 |
|
23 |
84,600 |
10392.77 |
|
24 |
84,600 |
9447.97 |
|
|
|
549482.16 |
|
|
|
|
|
Project Feasibility Positive NPV |
|
-517.8 |
|
IRR |
|
15% |
Type A project will be most beneficial for the company as compared to other projects because of its higher NPV and IRR.