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12. Party Boxes is a small business of producing packaging boxes using a special equipment. During the year, Party Boxes is faced with a capital
12. Party Boxes is a small business of producing packaging boxes using a special equipment. During the year, Party Boxes is faced with a capital budgeting decision where the special equipment must be repaired. The cost of this repair will be $5,000, and as a result, the equipment will be usable for another five years. Alternatively, the firm could purchase a new equipment for $12,000 and sell the old one for $4,000. The new equipment is more efficient and will increase the profits by 15 percent. Other information available is that profits for the last fiscal year was $10,000 and the company's cost of capital is 10 percent. (Note: Present Value Table is provided on the iast page of this paper i.e., page 15). Required: Assess by giving recommendation of whether the firm should purchase the new equipment or repair the old one. Show all calculations. Ignore taxes. (10 marks)
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