The Wyckoff Company specializes in decorative fruit baskets. Currently, the company is analyzing purchase alternatives for a fruit-polishing machine. Data relevant to the decision are as follows
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Machine X
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Machine Y
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Cost
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$80,000
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$72,000
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Useful life
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5 years
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5 years
|
|
Residual value
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$2,000
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$3,000
|
|
Estimated annual net cash flows
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$32,000
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$28,000
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|
|
|
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Present value multipliers at 12 percent:
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|
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Dollar received at the end of five years
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.567
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Dollar received at the end of each of the next five years
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3.605
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A. Using the net present value method, prepare an analysis to determine which machine the company should purchase. (The company uses a 12 percent minimum desired rate of return.)
B) Discuss the qualitative factors that should be considered in the evaluation of proposals in addition to the quantitative factors
C) What criteria must be met for accepting any capital expenditure proposal with respect to minimum rate of return on investment?