Question 5 You own a furniture manufacturing company. You are looking to expand into glass furniture and need to buy new manufacturing equipment to manufacture this type of furniture. You have researched many suppliers but have found that two machines will best suit your needs. The cost of machine 1 is $90,000, and the cost of machine 2 is $110,000. The estimated net profits the machines will generate are in the following table:Net Profit Machine 1 (cost $90,000) Machine 2 (cost $110,000)Year 1 $20,000 $10,000Year 2 $30,000 $20,000Year 3 $40,000 $40,000Year 4 $20,000 $60,000Year 5 $20,000 $50,000Total $130,000 $180,000 a) Compare the ARR for both machines and decide which machine you should buy. b) Critically evaluate the ARR technique in evaluating investment options.
Question 5
You own a furniture manufacturing company. You are looking to expand into glass furniture and need to buy new manufacturing equipment to manufacture this type of furniture. You have researched many suppliers but have found that two machines will best suit your needs. The cost of machine 1 is $90,000, and the cost of machine 2 is $110,000. The estimated net profits the machines will generate are in the following table:
Net Profit Machine 1 (cost $90,000) Machine 2 (cost $110,000)
Year 1 $20,000 $10,000
Year 2 $30,000 $20,000
Year 3 $40,000 $40,000
Year 4 $20,000 $60,000
Year 5 $20,000 $50,000
Total $130,000 $180,000
a) Compare the ARR for both machines and decide which machine you should buy.
b) Critically evaluate the ARR technique in evaluating investment options.
Step by step
Solved in 4 steps with 2 images
