Corad Corporation is considering investing in a new piece of equipment that would allow them to...
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Corad Corporation is considering investing in a new piece of equipment that would allow them to automate their production process. The equipment would cost $450,000 and have a salvage value of $100,000 at the end of the 8 year useful life. The equipment would require a $150,000 repair at the end of year 4. The equipment is expected to generate additional annual cashflow from current customers of $220,000 however it will increase annual operating costs by 70,000 and annual maintenance costs by 53,000. The company uses an 9% discount rate. Required: (8 Marks) A) Compute the Payback period B) Compute the Net Present Value (NPV) C) State whether the company should move forward with the investment. List 3 other factors that the company could consider before making the decision. Corad Corporation is considering investing in a new piece of equipment that would allow them to automate their production process. The equipment would cost $450,000 and have a salvage value of $100,000 at the end of the 8 year useful life. The equipment would require a $150,000 repair at the end of year 4. The equipment is expected to generate additional annual cashflow from current customers of $220,000 however it will increase annual operating costs by 70,000 and annual maintenance costs by 53,000. The company uses an 9% discount rate. Required: (8 Marks) A) Compute the Payback period B) Compute the Net Present Value (NPV) C) State whether the company should move forward with the investment. List 3 other factors that the company could consider before making the decision.
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A Payback Period Payback period is the time it takes for the initial investment to be recovered from ... View the full answer
Related Book For
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly
Posted Date:
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