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.
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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.
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