Question 4 Fiorentina Ltd is considering the purchase of a new flexible manufacturing system. The savings associated with the system are estimated to be as follows: Increased production quality Decrease in operating costs Increase in on-time deliveries £75,000 £20,000 £5,000 The system would cost £400,000 and would have an estimated useful life of ten years. At the end of the ten years, the system would have a salvage value of £30,000. Fiorentina Ltd has estimated its cost of capital to be 8 per cent. Required: (a) Compute the Net Present Value and the Payback Period of the new flexible manufacturing system under consideration by Fiorentina Ltd. (b) Prepare a Memorandum to management, in orderly format, with your recommendations regarding whether Fiorentina Ltd should purchase the flexible manufacturing system. Include all supporting calculations for the whole period. In addition, discuss the qualitative factors that might influence Fiorentina Ltd management's decision.

Question 4 Fiorentina Ltd is considering the purchase of a new flexible manufacturing system. The savings associated with the system are estimated to be as follows: Increased production quality Decrease in operating costs Increase in on-time deliveries £75,000 £20,000 £5,000 The system would cost £400,000 and would have an estimated useful life of ten years. At the end of the ten years, the system would have a salvage value of £30,000. Fiorentina Ltd has estimated its cost of capital to be 8 per cent. Required: (a) Compute the Net Present Value and the Payback Period of the new flexible manufacturing system under consideration by Fiorentina Ltd. (b) Prepare a Memorandum to management, in orderly format, with your recommendations regarding whether Fiorentina Ltd should purchase the flexible manufacturing system. Include all supporting calculations for the whole period. In addition, discuss the qualitative factors that might influence Fiorentina Ltd management's decision.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

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