question archive A manufacturing company is evaluating two options for new equipment to introduce a new product to its suite of goods
Subject:AccountingPrice: Bought3
A manufacturing company is evaluating two options for new equipment to introduce a new product to its suite of goods. The details for each option are provided below:
Option 1
Revenues are estimated to be:
Year 1Year 2Year 3Year 4Year 5Year 6Year 7- 75,000 100,000 125,000 150,000 150,000 150,000
Option 2
Revenues are estimated to be:
Year 1Year 2Year 3Year 4Year 5Year 6Year 7- 80,000 95,000 130,000 140,000 150,000 160,000
The company's required rate of return and cost of capital is 8%.
Management has turned to its finance and accounting department to perform analyses and make a recommendation on which option to choose. They have requested that the four main capital budgeting calculations be done: NPV, IRR, Payback Period, and ARR for each option.