Your firm spends $500,000 per year (end of the year payment) in regular maintenance of its equipment. Due to the COVID-19 economic downturn, the firm considers forgoing these maintenance expenses for the next three years. If it does so, it expects it will need to spend $2 million in year 4 (end of the year payment) replacing failed equipment. Can IRR be applied in this decision? For what MARR is forgoing maintenance a good decision?

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.