Question
Morguard Corporation was considering purchasing a new piece of forklift equipment for their warehouse. The machine would cost $1,455,000 plus an additional $65,000 in shipping
Morguard Corporation was considering purchasing a new piece of forklift equipment for their warehouse. The machine would cost $1,455,000 plus an additional $65,000 in shipping and $30,000 in setup costs. It would have a salvage value of $75,000 at the end of 8 years. The company believes that the purchase will result in a savings in annual operating costs of $90,000 per year as well as annual cash inflows from customers of $300,000 per year. In addition the company expects to have additional net annual outflows for fuel of $30,000 and maintenance of $20,000. In year 4 the company plans to have a major upgrade to the equipment of $300,000.
The company cares more about profitability than overall cashflows, and generally only accepts projects where they can recover their funds within 55% of the useful life. The company uses a 10% discount rate to make investment decisions.
A) Compute the cash payback period
B) Compute the NPV and profitability index
C) State whether or not the company should move forward or not and why based on the above information?
D) They also have another opportunity to buy a separate machine that has a $50,000 NPV and a 1.2 profitability index. Which machine should they buy?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started