Metalcrafters Inc produces specialized polished and anodized aluminum hardware and molding parts for the auto industry. Metalcrafters, Inc. has long had a reputation for being on the conservative side when it came to taking on investments. It is now tasked with analyzing the financial payoffs of four potential investments along with two contracts of the budget committee. Metalcrafters task is to subject the investments and ultimately decide which of the investments are worth the companies time and money.
Two of the proposed four investments were in new equipment. The first of these two was the purchase of a new stamping press. Metalcrafters had been experiencing a high amount of costs associated with the repairs…show more content… To calculate what the cash flows are, they can find the depreciation of the machine for each year using the MACRS table, then subtract it from the yearly cash flow. After they calculate the NPVs of both the stamping press and the extrusion press alternatives are known, The internal rate of return (IRR) can be calculated. To do that they can find the IRR for each press by setting the initial cost, and cash flows discounted at the IRR. Next to be calculated is the profitability index, to calculate that number they can take the NPV of the presses and divide it by the initial investment of the machine. Lastly, they can calculate the discounted Payback method. Using this method the company can discount the future cash flows (and see how long it would take to recover the initial investment While Mr. Chen is looking at and dealing with the facts that the stamping presses have different expected lives and the extrusion presses have different capacities, I think most importantly he should be looking closely at their expected lives and choose the one that last the longest so they will not have to improve the efficiency of the machines and have it almost become a sunk cost like their last machine. I do not think capacities really matter, I think the most logical decision making for this company would be to choose the machine that will make the most outcome of sales and has longer durability. Even if it has more