1. Flowton Products enjoys a steady demand for stainless steel infiltrators used in a number of chemical processes. Revenues from the infiltrator division are $50 million/year, and production costs are $47.5 million. However, the 10 high-precision Munster stamping machines that are used in the production process are coming to the end of their useful life. One possibility is simply to replace each existing machine with a new Munster. These machines would cost

$800,000 each and would not involve any additional operating costs. The alternative is to buy 10 centrally controlled Skilboro stampers. Skilboros cost $1.25 million each, but compared with the Munster, they would produce a total saving in operator and material costs of $500,000/year. Moreover, the Skilboro is sturdily built and would last 10 years, compared with an estimated 7- year life for the Munster.

Analysts in the infiltrator division have produced the accompanying summary table, which shows the forecast total cash flows from the infiltrator business over the life of each machine. Flowtons standard procedures for appraising capital investments involve calculating net present value, internal rate of return, and payback, and these measures are shown in the table below.

a. Discuss which, if any, of the metrics within the table are sufficient to allow Flowton to make a decision. For any metrics that are not sufficient for Flowton to make a decision, discuss the reason.

b. Identify the correct decision for Flowton to make. This may involve additional calculations.