Decision making in Accounting - Frontline Manufacturing Company Free Essay, Term Paper and Book Report
The Frontline Manufacturing Company is considering the purchase of two
different types of machines to manufacture auto speed guages, one of the many
products it produces for industrial markets. The two machines are alike in the
following ways: each requires an initial investment of Rs. 15,00,000, will last for
five years after which the salvage value will be zero and has sufficient capacity to
meet the projected steady demand. The main difference between the two
machines is the timing and amount of operating cash flows. Machine A's operat-
ing cash costs would start out high and then decrease in subsequent years. For
machine B, constant operating cash costs are predicted. The incremental net cash
flows (revenues minus operating cash costs) for the two machines are expected to
be as follows:
After tax Cash Flow per year
Machine A. 15,00,000 2,00,000 4,00,000 4,00,000 6,00,000 11,00,000 (Rs)
Machine B 15,00,000 5,00,000 5,00,000 5,00,000 5,00,000 5,00,000 (Rs)
The company needs to determine which of the two machines it should buy to manu-
Word Count: 723
Page Count: 2.8 (250 words a page / double spaced)
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