A tianpit Operator is consening purchasing a new techndoyy that wll ieduce tme S

Question

A tianpit Operator is consening purchasing a new techndoyy that wll ieduce tme Spetby buses n cungokd traffic. Tu agunat is considen two alkinahivs kchnologjes, deeir hfe spums, costs and benehts ai cescnibed Purchase (ost (Sk) Annval Oprating Cost (Sk) Annual Ixrcase in Mantenane (x)I.S Annual arystion Songs (1 -12- Assuwing 1-3% 3For each aler nahve, sketch ta cash Rou dagam bosing Incremental Bemeht - Cost Aralysis dekrmne uhich, i eter, ot t logie iect Hu agenuy years-n 3rors-n 12 12K 2k 12k 4.56 25k Zok

Explanation / Answer

a) Has already been answered in the above sheet.

b) The incremental cash flows and the incremental cost benefit analysis is presented below:

We will not accept any of the above proposals as the NPV of both the proposals is negative and hence both are non profitable.

Alternative 1 ( figures in $k) 0 1 2 3 4 Annual savings 12 12 12 12 Annual operaing cost 5 5 5 5 Annual increase in maintenance 1.5 1.5 1.5 1.5 Operating income 5.5 5.5 5.5 5.5 Initial investment -30 Net cash flows -30 5.5 5.5 5.5 5.5 Cost of capital 1 0.971 0.943 0.915 0.888 PV of cash flows -30 5.340 5.184 5.033 4.887 NPV -9.56 Alternative 2 ( figures in $k) 0 1 2 3 Annual savings 10 10 10 Annual operaing cost 4.5 4.5 4.5 Annual increase in maintenance 0 0 0 Operating income 5.5 5.5 5.5 Initial investment -25 Net cash flows -25 5.5 5.5 5.5 Cost of capital 1 0.971 0.943 0.915 PV of cash flows -25 5.340 5.184 5.033 NPV -9.44

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