Question

A small scale industry has purchased a CNC machine for Rs. 10,00,000. The
production engineer estimates that the machine has a useful life of 8 years
and a salvage value of Rs. 50,000 at the end of its useful life. Compute the
depreciation schedule for the machine using double declining balance
method of depreciation.

Answer 1

Answer:

Explanation:

Total present value = $56,175

Less: intial Outlay = $50,000

Net present value= $6,175

Profitability Index (gross) = Present value of cash inflows / intial cash outflow

= 56,175 / 50,000

= 1.1235

As the P.I. is higher than 1, the proposal can be accepted.

Net Profitability = NPV / Initial cash outlay

= 6,175 / 50,000 = .1235

N.P.I. = 1.1235 – 1 = 0.1235

As the net profitability index is positive, the proposal can be accepted.