Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years. Their current cost of capital is 10%. Following are selected factors from tables for 10 years at 10%: FV of $1 FVOA PV of $1 PVOA 2.59374 15.93742 0.38554 6.14457 Required: Evaluate the investment Both Payback and Accounting Rate of Return measures support the decision to purchase of a computer-aided manufacturing system, but do not consider the time value of money. The net present value is negative which is favorable. There are other relevant variables that need to be considered such as any changes in operating costs and any non-financial or qualitative factors. Both Payback and Accounting Rate of Return measures support the decision to purchase of a computer-aided manufacturing system, but do not consider the time value of money. The net present value is negative which is unfavorable. There are other relevant variables that need to be considered such as any changes in operating costs and any non-financial or qualitative factors. Both Payback and Accounting Rate of Return measures do not support the decision to purchase of a computer-aided manufacturing system, and do not consider the time value of money. The net present value is negative which is unfavorable. There are other relevant variables that need to be considered such as any changes in operating costs and any non-financial or qualitative factors. Both Payback and Accounting Rate of Return measures support the decision to purchase of a computer-aided manufacturing system, and consider the time value of money. The net present value is negative which is unfavorable. There are other relevant variables that need to be considered such as any changes in operating costs and any non-financial or qualitative factors.
QUESTION 37
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Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years. Their current cost of capital is 10%. Following are selected factors from tables for 10 years at 10%:
FV of $1
FVOA
PV of $1
PVOA
2.59374
15.93742
0.38554
6.14457
Required: Evaluate the investment
Both Payback and Accounting
Rate of Return measures support the decision to purchase of a computer-aided manufacturing system, but do not consider thetime value of money . Thenet present value is negative which is favorable. There are other relevant variables that need to be considered such as any changes in operating costs and any non-financial or qualitative factors.Both Payback and Accounting Rate of Return measures support the decision to purchase of a computer-aided manufacturing system, but do not consider the time value of money. The net present value is negative which is unfavorable. There are other relevant variables that need to be considered such as any changes in operating costs and any non-financial or qualitative factors.
Both Payback and Accounting Rate of Return measures do not support the decision to purchase of a computer-aided manufacturing system, and do not consider the time value of money. The net present value is negative which is unfavorable. There are other relevant variables that need to be considered such as any changes in operating costs and any non-financial or qualitative factors.
Both Payback and Accounting Rate of Return measures support the decision to purchase of a computer-aided manufacturing system, and consider the time value of money. The net present value is negative which is unfavorable. There are other relevant variables that need to be considered such as any changes in operating costs and any non-financial or qualitative factors.
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