The Flower City Grocery is faced with the following capital budgeting decision. Its display freezer system must be repaired. The cost of this repair will be $ 1,000 and the system will be usable for another five years. Alternatively, the firm could purchase a new freezer system for $ 5,000 and sell the old one for $ 500. The new freezer system has more display space and will increase the profits attributable to frozen foods by 30 percent. Profits for that department were $ 5,000 in the last fiscal year. The company’s cost of capital is 9 percent. Ignoring taxes, what should the firm do?
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