Please describe the circumstances of the following case study and recommend a course of action Explain your approach to the problem, perform relevant calculations and analysis, and formulate a recommendation Ensure your work and recommendation are thoroughly supported Case Study A manufacturing company is evaluating two options for new equipment to introduce a new product to its suite of goods The details for each option are provided below Option 1 $65,000 for equipment with useful life of 7 years and no salvage value Maintenance costs are expected to be $2,700 per year and increase by 3 in Year 6 and remain at that rate Materials in Year 1 are estimated to be $15,000 but remain constant at $10,000 per year for the remaining years Labor is estimated to start at $70,000 in Year 1, increasing by 3 each year after Revenues are estimated to be Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 75,000 100,000 125,000 150,000 150,000 150,000 Option 2 $85,000 for equipment with useful life of 7 years and a $13,000 salvage value Maintenance costs are expected to be $3,500 per year and increase by 3 in Year 6 and remain at that rate Materials in Year 1 are estimated to be $20,000 but remain constant at $15,000 per year for the remaining years Labor is estimated to start at $60,000 in Year 1, increasing by 3 each year after Revenues are estimated to be Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 80,000 95,000 130,000 140,000 150,000 160,000 The companys required rate of return is 8 Management has turned to its finance and accounting department to perform analyses and make a recommendation on which option to choose They have requested that the four main capital budgeting calculations be done NPV, IRR, Payback Period, and ARR for each option

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Please describe the circumstances of the following case study and recommend a course of action. Explain your approach to the problem, perform relevant calculations and

Please describe the circumstances of the following case study and recommend a course of action. Explain your approach to the problem, perform relevant calculations and analysis, and formulate a recommendation. Ensure your work and recommendation are thoroughly supported.

Case Study:

A manufacturing company is evaluating two options for new equipment to introduce a new product to its suite of goods. The details for each option are provided below:

Option 1

$65,000 for equipment with useful life of 7 years and no salvage value.
Maintenance costs are expected to be $2,700 per year and increase by 3% in Year 6 and remain at that rate.
Materials in Year 1 are estimated to be $15,000 but remain constant at $10,000 per year for the remaining years.
Labor is estimated to start at $70,000 in Year 1, increasing by 3% each year after.

Revenues are estimated to be:


Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7
-	75,000	100,000	125,000	150,000	150,000	150,000

Option 2

$85,000 for equipment with useful life of 7 years and a $13,000 salvage value
Maintenance costs are expected to be $3,500 per year and increase by 3% in Year 6 and remain at that rate.
Materials in Year 1 are estimated to be $20,000 but remain constant at $15,000 per year for the remaining years.
Labor is estimated to start at $60,000 in Year 1, increasing by 3% each year after.

Revenues are estimated to be:


Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7
-	80,000	95,000	130,000	140,000	150,000	160,000

The companys required rate of return is 8%.

Management has turned to its finance and accounting department to perform analyses and make a recommendation on which option to choose. They have requested that the four main capital budgeting calculations be done: NPV, IRR, Payback Period, and ARR for each option.