The Flower City Grocery is faced with the following capital budgeting decision. Its display freezer system must

Question:

The Flower City Grocery is faced with the following capital budgeting decision. Its display freezer system must be repaired. The cost of this repair will be $ 1,000 and the system will be usable for another five years. Alternatively, the firm could purchase a new freezer system for $ 5,000 and sell the old one for $ 500. The new freezer system has more display space and will increase the profits attributable to frozen foods by 30 percent. Profits for that department were $ 5,000 in the last fiscal year. The company’s cost of capital is 9 percent. Ignoring taxes, what should the firm do?

Capital Budgeting
Capital budgeting is a practice or method of analyzing investment decisions in capital expenditure, which is incurred at a point of time but benefits are yielded in future usually after one year or more, and incurred to obtain or improve the... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...