Question A) Oseikrom Ventures is considering minimizing its production cost through the automation of...
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Accounting
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A) Oseikrom Ventures is considering minimizing its production cost through the automation of its production system. Two machines are being considered to save cost. The estimated data for the two machines available on the market are as follows:
Machine A
Machine B
GH'000
GH'000
Initial cost (Year 0)
120,000
120,000
Residual value of machines (Year 5)
20,000
30,000
Annual cost savings
Year:1
40,000
20,000
2
40,000
30,000
3
40,000
50,000
4
20,000
70,000
5
20,000
20,000
The companys cost of capital is 10%.
Required:
Using the following methods, which machine should be selected?
i) Net Present Value (10 marks)
ii) Discounted Payback Period (5 marks)
B) Identify and explain TWO (2) advantages of the Net Present Value technique. (4 marks)
C) State and explain TWO (2) approaches that can be used in setting a standard within an organization. (6 marks)
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