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Global Manufacturing Ltd needs to replace one of its drill presses owing to ever - increasing breakdowns and escalating maintenance costs. Joe, the factory manager,
Global Manufacturing Ltd needs to replace one of its drill presses owing to everincreasing
breakdowns and escalating maintenance costs. Joe, the factory manager, identified two possible
replacement options for management to consider. Only one new drill press is needed. Joe,
together with the financial manager, prepared the table of relevant cash flows below for each of
the alternatives. The financial manager calculated the company's cost of capital to be
Drill press A will require an initial investment of R and drill press B R
Required:
Apply the net present value NPV capital budgeting technique to determine the NPVs
for the two drill presses.
Recommend to Global's management which one of the two drill presses should be
considered as the replacement and substantiate your decision.
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