CASE 4

Mr. Redentor Romualdo was reprimanded by his boss due to his recommendation to purchase a factory equipment costing P1,500,000 which he believes will surely help the company to save costs. Upon review by the project manager, the said purchase will not meet the companys required return of 12% for all projects.

Project Manager: I cant believe this, Mr. Romualdo. Havent you learned that in order for a project to be acceptable, the return should exceed the companys rate of return? This is pathetic.

Boss: That is why I dont see any essence why he came up with this recommendation. I am so disappointed.

Required: Discuss the implication of the companys required return of 12%. If you were Mr. Romualdo, do you think it will be worth it to purchase the said equipment? Why or why not?