Professional Documents
Culture Documents
in
Program :
PGDM - 01
Faculty :
Prof.Dr.P.R.Ramakrishnan
Course :
Trimester :
II
Session/s :
11
Week :
4
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LEARNING OBJECTIVES
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Breakeven Point
Value of a parameter that makes two elements equal
Profit, P Amount of
revenue remaining after costs
P = R TC = R (FC+VC)
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FC
rv
Profit
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Breakeven
value of X
AW,
1000
$/year
8
AWbu
y
AWmake
6
5
4
3
2
1
0
1
4
Machine
1
2
P, $
-80,000 -110,000
NCF, $/year 25,000
22,000
S, $
2,000
3,000
n, years
4
6
Solution: a) Select machine A
with AWA = $193
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Changing
cell
Target
cell
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Points to
Analysis
Remember
About
Payback
System 1
3,000
7
System 2
12,000
8,000
1,000 (year
3,000 (year 6-14)
14
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3,000
System 2
12,000
8,000
1,000 (year 1-5)
3,000 (year 6-14)
14
0 = -8,000 + 1,000(P/A,15%,5)
+ 3,000(P/A,15%,np2 - 5)(P/F,15%,5)
np1 = 9.5 years
Select system 1
(c) Find PW over LCM of 14 years
PW1 = $663
PW2 = $2470
Select system 2
Comment: PW method considers cash flows after payback period.
Selection changes from system 1 to 2
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LEARNING OUTCOME