Question
You own a furniture manufacturing company. You are looking to expand into glass furniture and need to buy new manufacturing equipment to manufacture this type
You own a furniture manufacturing company. You are looking to expand into glass furniture and need to buy new manufacturing equipment to manufacture this type of furniture. You have researched many suppliers but have found that two machines will best suit your needs. The cost of machine 1 is $90,000, and the cost of machine 2 is $110,000. The estimated net profits the machines will generate are in the following table:
| Net Profit | Machine 1 (cost $90,000) | Machine 2 (cost $110,000) |
| Year 1 | $20,000 | $10,000 |
| Year 2 | $30,000 | $20,000 |
| Year 3 | $40,000 | $40,000 |
| Year 4 | $20,000 | $60,000 |
| Year 5 | $20,000 | $50,000 |
| Total | $130,000 | $180,000 |
- Compare the ARR for both machines and decide which machine you should buy. [Note: you are supposed to show every step of your calculation and interpret the result.]
- Critically evaluate the ARR technique in evaluating investment options. [Note: remember to use Harvard referencing to reference your sources]
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