(Change in investment assumption) Five Star Linen Supply Company provides laundered items to various commercial and service establishments in a large met¬ ropolitan city. Five Star is scheduled to acquire some new cleaning equipment in mid-1997 that should provide some operating efficiencies. The new equip¬ ment would enable Five Star to increase the volume of laundry it handles without any increase in labor costs. In addition, the estimated maintenance costs in terms of pounds of laundry would be reduced slightly with the new equipment.

The new equipment was justified on the basis not only of reduced cost but also of expected increase in demand starting in late 1997. However, since the original forecast was prepared, several potential new customers have either de¬ layed or discontinued their own expansion plans in the market area that is ser¬ viced by Five Star. The most recent forecast indicates that no great increase in demand can be expected until late 1998 or early 1999.

Identify and explain the factors that Five Star Linen Supply Company should consider in deciding whether to delay the investment in the new cleaning equipment. In the presentation of your response, distinguish between those fac¬ tors that tend to indicate that the investment should be made as scheduled versus those that tend to indicate that the investment should be delayed.

(CMA)