Question
A company is deciding whether to finish an expansion of its building so that it can manufacture a new product. Two years ago, the company
A company is deciding whether to finish an expansion of its building so that it can manufacture a new product. Two years ago, the company paid $4 million to build the basic structure, but did not finish the inside of the building so it could be used. The current proposal is to spend $2 million to finish the building so that it meets building code. Then the company will spend $6 million for equipment to produce a product that it expects will generate cash of $2 million per year for 5 years. If the company uses the payback method with a 5 year cutoff, should it take this project? Explain.
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