Question
A company is planning to install a new automated plastic-molding press. Two different presses are available. The initial capital investments and annual expenses for these
A company is planning to install a new automated plastic-molding press. Two different presses are available. The initial capital investments and annual expenses for these two mutually exclusive alternatives are as follows:
Assume that each press can produce 120,000 units per year (but the given percentage can't be sold) and has no market value at the end of its useful life; the selected analysis period is five years; and any additional capital invested is expected to earn at least 10% per year. Nondefective units can be sold for $0.375 per unit.
Question 1
What is the PW of Press 1? Round your answer to the nearest dollar.
Question 2
What is the PW of Press 2? Round your answer to the nearest dollar.
Question 3
Which press should be recommended?
Press 1
Press 2
Question 4
What does your recommendation tell you about the incremental IRR of the extra $2,400 investment needed for Press 2?
\begin{tabular}{|l|c|c|} \hline & Press 1 & Press 2 \\ \hline Capital Investment & $49,600 & $52,000 \\ \hline Annual expenses: & $25,192 & $23,580 \\ \hline Reject & 2.6% & 5.6% \\ \hline Rate & & \\ \hline \end{tabular}Step by Step Solution
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