Coca-cola ltd Company wants to venture in the production of its own can. Two new automated process machines used in the production of aluminum utensils have been introduced to the market, the MLH and the NSA. Both will give cost savings over existing processes: MLH NSA Initial Cost Rs 240, 000 Rs 254,000 Cash flow savings: At Time 1 96,000 100,000 At Time 2 96,000 100,000 At Time 3 96,000 100,000 At Time 4 96,000 100,000 All other factors remain constant and the firm has access to large amounts of capital. The required return on projects is 4%. REQUIRED: (i) Calculate the payback period for each machine. (ii) Calculate the IRR for MLH using trial rate of 21% and 22%. (iii) Calculate the IRR for NSA using trial rates of 18% and 35%. (iv) Calculate the NPV for each machine. (v) Assuming the depreciation rate is 10% on a straight line method for each machine, calculate the ARR for each machinery. Explain normally which machine coca-cola co. ltd should choose based on the above results.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Coca-cola ltd Company wants to venture in the production of its own can. Two new automated process machines used in the production of aluminum utensils have been introduced to the market, the MLH and the NSA. Both will give cost savings over existing processes:
MLH NSA
Initial Cost Rs 240, 000 Rs 254,000
Cash flow savings:
At Time 1 96,000 100,000
At Time 2 96,000 100,000
At Time 3 96,000 100,000
At Time 4 96,000 100,000
All other factors remain constant and the firm has access to large amounts of capital. The required return on projects is 4%.
REQUIRED:
(i) Calculate the payback period for each machine.
(ii) Calculate the IRR for MLH using trial rate of 21% and 22%.
(iii) Calculate the IRR for NSA using trial rates of 18% and 35%.
(iv) Calculate the
(v) Assuming the
Explain normally which machine coca-cola co. ltd should choose based on the above results.
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