A new antitheft system incorporating MEMS technology is being separately evaluated economically by three engineers at Dragon Technologies. The first cost of the equipment will be $85,000, and the life is estimated at 6 years with a salvage value of $9000. The engineers made different estimates of the net savings that the equipment might generate. Jacob made an estimate of $12,000 per year. Susan states that this is too low and estimates $13,000, while Tyler estimates $23,000 per year before tax. If the MARR is 8% per year, use PW to determine if these different estimates will change the decision to purchase the equipment. The present worth of the pessimistic estimate is $[ The present worth of the most likely estimate is $[ The present worth of the optimistic estimate is $ The equipment purchase by the pessimistic estimate is [(Click to select) The equipment purchase by the most likely estimate is [(Click to select) The equipment purchase by the optimistic estimate is [(Click to select)
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
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