The Zeda Company Ltd. is considering a substantial investment in a new production process. From a variety of sources, the total cost of the project has...

      

The Zeda Company Ltd. is considering a substantial investment in a new production process. From a
variety of sources, the total cost of the project has been estimated at Sh.20 million. However, if the
investment were to be increased to Sh.30 million, the productive capacity of the plant could be substantially
increased. Due to the nature of the process, it would be exorbitantly expensive to increase capacity once the
equipment is installed.
Once of the problems facing the company is that there is a considerable degree of uncertainty regarding
demand for the product. After some research which has been conducted jointly by the marketing and
finance departments, some data has been produced. These are shown below:
fig191304112.png

REQUIRED:
(a) Prepare a statement which clearly indicates the financial implications of each of the two alternative
investment scenarios.
(b) Comment on other matters which the management should take into account before reaching
the final decision.
PVIFA: 10% 5 years = 3.79
PVIFA: 10% 10 years = 6.14
PVIFA: 10% 10 years = 0.62

  

Answers


Kavungya
fig201304114.png
Kavungya answered the question on April 13, 2021 at 10:14


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