Answer to Question #79622 in Accounting for john24

Question

laundry processed 120 kg & is expected to grow to 132 kg. This growth will continue at the same percentage rate for next 7years . Currently hospital , is considering two options, the purchase of machine A or the rental of machine B. given information: Machine A – purchase Annual capacity £180 Material cost per kilogram £2 Labour cost per kilogram £3 Fixed costs per annum £20 Life of machine 3 years Capital cost £60 Depreciation per annum £20 Machine B – rent Annual capacity (kilograms) £170 Material cost per kilogram £1.8 Labour cost per kilogram £3.4 Fixed costs per annum £18 Rental per annum £20 Rental agreement 3 years Depreciation per annum nil 1. The hospital is able to call on an outside laundry if there is either a breakdown. The charge would be £10 per kilogram of washing. 3. Machine A will have no residual value at any time. 4. Present machine can be sold £10 cash 6. discount rate is 15%. (a) evaluate the two options for operating the laundry, using discounted cash flow techniques;

Answer 1

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