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The Macon Bacon Company has to make a decision. They have the opportunity to invest in a new production facility for $400,000, which will yield
The Macon Bacon Company has to make a decision. They have the opportunity to invest in a new production facility for $400,000, which will yield a yearly cash flow of $90,000 for the next 7 years. The second option is a new oven that will cost $100,000 and will yield yearly cash flows of $30,000 for the next 5 years. The rate of return for both opportunities is 9%. After consulting the annuity table, management determined that the production facility opportunity has an annuity factor of 5.03295 and the annuity factor for the new oven is 3.88965. If Macon uses the net present value to make its decisions, which opportunity should it pursue? Macon should invest in the production facility. The production facility yields a profit of $45,872.25, whereas the new oven only yields a profit of $11,973.50. Macon should invest in the production facility. The production facility yields a profit of $52,965.50, whereas the new oven only yields a profit of $16,965.50. Macon should invest in the new oven. The new oven yields a profit of $12,697.43, whereas the production facility only yields a profit of $11,469.23. Macon should invest in the new oven. The new oven yields a
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