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please, answer by good reason and in you own word. You continue to get promoted in your company. Now YOU are in charge of expansion
please, answer by good reason and in you own word.
You continue to get promoted in your company. Now YOU are in charge of expansion decisions. One option comes across your desk and it intrigues you. You have to buy a new machine/product that will supposedly increase profitability. This product requires a machine at an initial cost of $1,000,000. Year 1,2 , and 3 will generate cash flows of $400,000. In year 4 you will get the same $400,000 cash in flow, but you anticipate maintenance to the machine of $600,000. Then the remaining years (year 5,6 , and 7 ) will also have $400,000 in cash flow. Your required rate of return is that of the market (8%) and you are comparing this against many other products as you only have an initial $1,750,000 to spend. Please answer the questions 1. Which method of comparing projects CANNOT be used (ensure to explain your reasoning) ( 1 pt). 2. Management (Mgmt) says the the profitability index tells him/her this is the best project, and mgmt should choose this option. What would your counter be as to a negative to using that (use the reasoning and numbers above) (1 pt) Step by Step Solution
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