Your team of three worksin the Finance division of the Carlton Manufacturing Company Ltd. The

company is in the process of deciding whether or not to purchase a new plastic injection machine.

Your companys Chief Financial Officer has asked you to make a recommendation as to whether

or not the company should proceed with the project based on the following information:

A. Balance sheet and notes

Carlton Manufacturing Company Ltd

Balance Sheet as at 31/12/21

ASSETS LIABILITIES Notes

Cash 140 Accounts payable 120

Accounts Receivable 200 Bank loan (interest only) 1 240

Inventory 610 Mortgage Loan 2 530

Property, plant & equipment 1,200 Corporate bonds 3 300

Total Assets 2,150 Total liabilities 1,190

SHAREHOLDERS EQUITY

Ordinary shares 4 430

Preference Shares 5 250

Retained earnings 280

Total shareholders equity 960

Total liabilities and shareholders equity 2,150

Notes

1. The interest rate on the bank loan is 8.2% p.a.

2. The interest rate on the mortgage loan is 5.9% p.a.

3. The corporate bonds have a credit rating of AA and have 2 years to maturity. They make

quarterly coupon payments at a coupon rate of 7% p.a.