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MidAtlantic Manufacturing (MAM) designs, manufactures, sells, and distributes ovens and parts to restaurants. Sales in the last two years have been depressed due to COVID.
MidAtlantic Manufacturing (MAM) designs, manufactures, sells, and distributes ovens and parts to restaurants. Sales in the last two years have been depressed due to COVID. Now MAM's management, anticipating a recovery in the restaurant industry wants to upgrade their Edison, New Jersey warehouse and expand their fleet of delivery trucks and customer service vehicles. The investment would reduce shipping costs and allow MAM to expand into New York State, a new market for MAM. Year 0 spending for this project would be$2,650,000 with Upgrading Warehouse and Vehicle Expansion Year12345678 Expected Cash Flow$425,000$515,000$675,000$790,000$865,000$915,000$945,000$955,000 Approximately 1/3 of the expected cash flow would come from cost savings and 2/3 from additional sales in New York State, a new market for MAM. (i) MAM's Chief Financial Officer (CFO) has decided to use a15%required rate of return to evaluate this project. What factors might have gone into her decision? (ii) Should MAM consider making this investment
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