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Question A) Oseikrom Ventures is considering minimizing its production cost through the automation of...

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Accounting

Question

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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