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Capital Budgeting The Illinois Fastener Company operates several fastener production cells. One of the cells is in urgent need of repairs. The company's president is
Capital Budgeting The Illinois Fastener Company operates several fastener production cells. One of the cells is in urgent need of repairs. The company's president is questioning the repair costs and is asking if the purchase of a new cell would be a less expensive solution. The existing cell can be repaired for $200,000 (immediately). The spindle will need an overhaul in 5 years ($80,000 cost). In 10 years, the cell will have reached its useful life and will have a scrap value of $60,000. Scrap value today is $70,000, and it costs $300,000/ per year to operate the existing cell. The cell will create an operating income stream of $400,000 per year. The Illinois Fastener Company requires a minimum return of 14% on all investment projects. Set up and submit a NPV calculation to repair the existing cell
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