Share
Explore BrainMass

Capacity Planning / Present Value Method: Two machines

1. Evaluate Machine A and Machine B.
Assume:
A. The life of each machine is 3 years
B. The company thinks it knows how to make 14% on investments no more risky than this one.

2. Determine, via Present Value Method, which machine should be recommended. Explain your decision. What assumptions are you making about the machines? What assumptions are you making in your methodology?
3. Please explain in details how/what/why you did what you did in this exercise and list the solutions which you have came up with. In other words, provide a written summary of this exercise so that I understand exactly how you did it.

See attachment for more details.

Attachments

Solution Preview

See the attached file for complete solution. The text here may not be copied exactly as some of the symbols / tables may not print. Thanks

Capacity Planning

1. Evaluate Machine A and Machine B.
Assume:
A. The life of each machine is 3 years
B. The company thinks it knows how to make 14% on investments no more risky than this one.
2. Determine, via Present Value Method, which machine should be recommended. Explain your decision. What assumptions are you making about the machines? What assumptions are you making in your methodology?
3. Please explain in details how/what/why you did what you did in this exercise and list the solutions which you have came up with. In other words, provide a written summary of this exercise so that I understand exactly how you did it.

Machine ...

Solution Summary

This post illustrates in a step by step manner how to take a capital investment decisions (capacity planning) by using NPV method. The problem is set up in Excel for easy understanding. Could be used as a good practice for the exam preparation.

$2.19