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Piscataway Industries is deciding whether to invest in Rahway Engineering's new manufacturing

technology (the asset) to reduce the cost of manufacturing high performance valves for the chemical industry. Spending to purchase and install this technology is $350,000.

Estimated cost savings from manufacturing:

 

 F2B625F1-3E7F-47A6-8C48-C3F3129E62BE.jpeg

 

Piscataway's Chief Financial Officer has determined the desired rate of return for the project is 8.5%.

What factors should the CFO have considered in selecting the desired rate of return?

Should Piscataway make this investment? Why or why not?

 

F2B625F1-3E7F-47A6-8C48-C3F3129E62BE.jpeg

Piscatway Industry - Cost Savings Rahway Engineering
(000s of $s)
Year
Annual Cash Cost Savings.(after tax) Are
2
$50
3
4
1$50
5
$75
6
7
$75
8
$75 -
$75
$75

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