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Unformatted text preview: n stage that is further separated into two sub stages: (1) obtain funding and make the investments selected in the stage 4 process, and (2) track the realized cash flows, compare against the forecast numbers, and revise plans if necessary. Diff: 2 Terms: capital budgeting Objective: 2 AACSB: Reflective thinking 123) Cast Iron Stove Company wants to buy a molding machine that can be integrated into its computerized manufacturing process. It has received three bids for the machine and related manufacturer's specifications. The bids range from $3,500,000 to $3,550,000. The estimated annual savings of the machines range from $260,000 to $270,000. The payback periods are almost identical and the net present values are all within $8,000 of each other. The president just doesn't know what to do about which vendor to choose since all of the selection criteria are so close together. Required: What suggestions do you have for the president? Answer: The president needs to consider nonfinancial and qualitative factors between the three vendors. Quality of output units, manufacturing flexibility, and cycle time are all additional factors that can be considered about the machines. Other items might include worker safety, ease of learning and using, and ease of maintenance. Diff: 2 Terms: capital budgeting Objective: 2 AACSB: Reflective thinking 124) Retail Outlet is looking for a new location near a shopping mall. It is considerin g purchasin g a building rather than leasing, as it has done in the past. Three retail buildings near a new mall are available but each has its own advantages and disadvantages. The owner of the company has completed an analysis of each location that includes considerations for the time value of money. The information is as follows: Location A 13% $25,000 Location B 17% $40,000 Location C 20% $20,000 Internal rate of return Net present value The owner does not understand how the location with the highest percentage return has the lowest net present value. Required: Explain to the owner...
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