(Investment Choices) Pilgrim Enterprises is planning to automate its factory and has sent out a request for...
Question:
(Investment Choices) Pilgrim Enterprises is planning to automate its factory and has sent out a request for proposals to various firms in the industry. Pilgrim received three bids on the project:
Each of the bids meets the specifications required by Pilgrim. The annual savings from automating the plant are estimated to be $600,000 per year for ten years. Each bid will result in the same savings. The company’s cost of capital is 10% and the company’s policy is to make investments that exceed their cost of capital. Brian Wong, the plant manager, is not sure which firm's bid to accept since the bids are so close.
a. Do each of the bids exceed the Pilgrim’s cost of capital?
b. If so, what other factors should Brian consider in making his decision?
Step by Step Answer:
Accounting For Managers Interpreting Accounting Information For Decision Making
ISBN: 9781118037966
1st Canadian Edition
Authors: Paul M. Collier, Sandy M. Kizan, Eckhard Schumann