Capital Investment Decision

Capital Investment Decision: ComprehensiveThe Arcadia Manufacturing Company, based in Arcadia, Florida, is one of the fastest –growing companies in its industry. According to Ms. Prinze, the company’s production vice president, keeping up –to-date with technological changes is what makes the company successful.Prinze believes a new machine will fill an important need. The machine has an estimated usefull life of for years, a purchase price of $250,000, and a residual value of $25,000. The company controller has estimated average annual net income of $11,250 and the following flows for the new machine:Cash Flow EstimatesYEAR CASH INFLOWS CASH OUTFLOWS NET CASH INFLOWS1 $325,000 $250,000 $75,0002 $320,000 $250,000 $70,0003 $315,000 $250,000 $65,0004 $310,000 $250,000 $60,000Prinze uses a 12% minimum rate of return and a three-year payback period for capital investment evaluation purposes.Questions:1. Analysis the data about the machine, and decide of the company should purchase it. Use the following evaluation approaches in your analysis: a. The net present value methodb. The accounting rate-of-return methodc. The payback period method. Use Tables 1 and 2 in the appendix on present value tables.2. Summarize the information generated in requirement 1, and make a recommendation to PrinzeTable #1 Present Value TablesPeriods 12%1 0.8932 0.7973 0.7124 0.6365 0.5676 0.5077 0.4528 0.4049 036110 0.32211 0.28712 0.25713 0.22914 0.20515 0.18316 0.16317 0.14618 0.13019 0.11620 0.10421 0.09322 0.08323 0.07424 0.06625 0.05926 0.05327 0.04728 0.04229 0.03730 0.03340 0.01150 0.003Table #2 Present Value TablesPeriods 12%1 0.8932 1.6903 2.4024 3.0375 3.6056 4.1117 4.5648 4.9689 5.32810 5.65011 5.93812 6.19413 6.42414 6.62815 6.81116 6.97417 7.12018 7.25019 7.36620 7.46921 7.56222 7.64523 7.71824 7.78425 7.84326 7.89627 7.94328 7.98429 8.02230 8.05540 8.24450 8.305Chapter 25 P5 Gus MorquechoCapital Investment Decision: ComprehensiveThe Arcadia Manufacturing Company, based in Arcadia, Florida, is one of the fastest –growing companies in its industry….

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