Doubt regarding CMA final question

This answer is straightforward and related to expenses and maintenance. This question is not linked to ROI calculations (because profit is not included) or investment appraisal (because Cashflows generated in not mentioned in the question)  and hence the answer is easy to simplify.

EXE MACHINE purchasing plus running costs is equalling (19,000+24000+4000+22,800) 73,800₹ for twelve years.

WYE MACHINE (13,000+13,000+31,200+2000+2000+1560) 62,760₹

The scrap value is the same for both, but you will gain 6,000₹ on WYE machine rather than mere 3,000₹ on EXE machine. 

WYE is affordable and recommended as long as the performance (number of units produced per machine hour) is the same.

All figures are in PV terms

Please mention, the above assumptions will change with one variable- finance costs. If a company clears off the debt within a year, the numbers will change.

Thanks for the guidance. But I can not follow Rs 1560 figure in Wye machine how you have calculated and Rs. 6000 more benefit you have got by comparing which two figures. I would be obliged if give the breakup of these figures

Sorry it’s 15600₹ (13,000*10%*12) Finance charges on WYE. The figure is restated to 76,800₹ making EXE machine more affordable than WYE machine under these circumstance.

That 6.000₹ is 3,000 Wye machine scrap value for first six years + 3,000 Wye machine scrap value for next six years. Out of 26,000₹ worth of two Wye machines, one can recover 3,000+3,000 ₹ scrap value while EXE machine can recover only 3,000₹ if a company can make a resale. Otherwise, it is not considerable and written off.

There is a catch in this problem which I overlooked. If you write off the scrap value from total expenses of both machines, the total expenses are 70,800₹. Maybe, the examiner is looking for this answer. Both machineries are good and the production manager can look up at other benefits like warranty, rebore, discounts etc.

As you have the value of both the machine are same I may not agree answer given in CMA study notes i.e. Exe and I can not understand why Rs. 4000 you have added twice in case of Exe machine in calculating the total expenses of the machine. Thanks

I think the total for Exe machine should be Rs.69800 as per your calculation. Thanks

EXE = 73,800₹-3,000₹ scrap value= 70,800₹

WYE = 76,800₹-6,000₹ scrap value= 70,800₹

in EXE, I used 4,000₹ only once if you will observe once again.

If Rs. 4000 used once the total should be Rs 69800. I am confused how your total comes to Rs 73800 in Exe machine. i have checked the total attentively. Thanks

Sorry again, your correct. I did get the same answer. I use mobile device, so must have typed in the wrong numbers due to typo errors. The main thing is, the lowest number after subtracting the scrap value is the right machine to adopt.