1. Explain the following a. Sunk Cost b. Opportunity Cost c. Salvage Value d. Ca

Question

1. Explain the following a. Sunk Cost b. Opportunity Cost c. Salvage Value d. Capitalised Cost (4 Marks) 2. As a; student of the University of Energy and Natural Resources, identify a business opportunity, and outline the steps you will take to establish your firm. (8 Marks) A company wants to invest in an electronic device to boost their existing performance. They are considering Alternative X and Alternative Y. Alternative X has a first cost of $20,000, an operating cost of $9,000 per year, and a $5,000 salvage value after 5 years Alternative Y will cost S35,00?with an operating cost of$4,000 per year and a salvage value of $7,000 after 5 years. At an MARR of 12% per year, which should be selected by the company? (8 Marks) 3. PART B-APPLYING AND ANALYZING (20 Marks) Ghana is facing electricity crisis, and a private company ABC is investigating what type of power source to invest in in order to sustain their energy needs. There are three alternatives to consider as show below: A1 Electric Power A2 Gas Power First Cost. 2500 First Cost: -3500 First Cost: -8000 Ann. Op. Cost:-900 Ann. Op, Cost-700Ann. Op Cost: -50 Sal. Value: 200 Sal Value: +350 Sal. Value: +100 ?? Solar Power Life 5 yearsLife 5 years Life 5 years Dr Amos Kabo-bah

Explanation / Answer

Ans.1.

a.Sunk Cost- Cost which have already incirred and which cannot be changed and which not effect on future cost

b.Oppotunity Cost- a cost of alternative that should be forget in order to doing some action

C.Salvage value -- estimate value of a a item when that item are sold at the end of its useful life.

D.capitalised value Means's a current value of a assets which can be realized o er the time period of that assets

Ans. 2.Outline the step to establish a firm

A.identify business name and business structure like llc, corporation , partnership etc

B. Take federal tax id

C. State tax id

D.other action like permit, business license, bank account, percent and copyright if applicable etc

Ans.3

Statement of cal. to Investment on which electronic devicee

=Initial outflow+ Present value of cash out flow- )Present value of salvage

Option.X=

=$20000+9000*3.60(5 Year pv factor)-5000*.567(fifth year pv factor)

=$49565

Option.Y.=

=35000+4000*3.60-7000*.567

=$45431

So, finally option .Y is better becouse of less cash outflow

State ment of energy need out of 3 alternative( amount in$)

113

(200*.567)

198.45

(350*.567)

56.7

(100*.567)

So from option option first electronic is best option with lowest cash flow of $5627

Particulars A1-electric B1-gas C1- Solar First cost 2500 3500 6000 +Add-Present value of annual operating cost 3240(900*3.60) 2520(700*3.60) 180(50*3.60) - less-Present value of salvage

113

(200*.567)

198.45

(350*.567)

56.7

(100*.567)

Total cash outflow a+b-c 5627 5821.55 6123.30

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