As manager you will need to decide whether or not the purchase of the new equipment is a worthwhile investment and to communicate your recommendations to Executive Management for a final decision. To be convincing, sufficient support for your recommendations must be provided in order to be considered valid and accepted.
Existing EquipmentOriginal Cost60,000Present Book Value30,000Annual Cash Operating Costs145,000Current Market Value15,000Market Value in Ten Years0Remaining useful Life10 years
Replacement EquipmentCost600,000Annual Cash Operating Costs50,000Market Value in Ten Years0Useful Life10 years
Other Information Cost of Capital10%Payback requirement6 years
In this assignment, use the information above to develop a comprehensive analysis using NPV, Payback Method, and IRR to develop a recommendation on replacing the existing equipment with a new computerized version. Develop an executive summary of your findings in a Microsoft PowerPoint presentation format to present to Executive Management.
Do the following in your presentation:
Include a statement of the problem or topic, a concise analysis of the findings, and a recapitulation of any main conclusions or recommendations.
Be sure to incorporate specific details to highlight or support the summary including calculations.
Using your knowledge of capital budgeting techniques, explain how principles of capital budgeting, such as the payback method, IRR, and NPV, can be used to assess the potential projects and assist in the decision-making process.