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NPV & EAC Questions

Forums › ACCA Forums › General ACCA Forums › NPV & EAC Questions

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by Kim Smith.
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  • March 17, 2023 at 1:37 pm #681469
    mzhareen
    Participant
    • Topics: 2
    • Replies: 0
    • ☆

    A construction company has two alternative schemes to improve their property portfolio. Scheme ‘A’ involves a complete modernisation of buildings which will cost £2,500,000 now. Annual operation and maintenance charges will amount to £125,000 per year.

    Scheme ‘B’ would involve investing £1,000,000 now and the remainder of the work carried out in 5 years’ time at a cost of £1,700,000. In this alternative scenario, annual operating and maintenance charges will be £150,000 per year for the first 5 years and

    £125,000 per year thereafter.

    For this purpose, you are required to calculate the Net Present Value (NPV) and the Equivalent Annual Cost (EAC) for both schemes and advise the client on the most appropriate option. Assume an annual interest rate of 7% and an assert life of 30 years for both schemes. Your answer needs to clearly illustrate the calculations and a brief explanation as to which option should be prioritised and why.

    March 17, 2023 at 2:13 pm #681470
    Kim Smith
    Keymaster
    • Topics: 135
    • Replies: 8308
    • ☆☆☆☆☆

    I have already replied on your initial post that we do not provide a homework/course assignment answering service https://opentuition.com/topic/help-96

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