Decision on Whether to Purchase the Apple Press or Not
Autor: aburks • September 30, 2015 • Coursework • 312 Words (2 Pages) • 1,044 Views
Anthony’s Orchard
Memorandum
To: Elias Demetriades
Chief Financial Officer
From:
Date: September 13, 2015
Subject: Decision on whether to purchase the apple press or now
The importance of capital budgeting can never be underscored enough in organizations more so in Anthony’s Orchard where maintaining overall company competitiveness is paramount amidst restricted availability of funds for capital projects.
It is therefore imperative that we use accurate methods to maximize the resources of the organization. In terms of capital budgeting, available tools to us include net present value (NPV) analysis, internal rate of return (IRR), payback, and accounting rate of return (ARR) among others.
In this regard, these tools were used to evaluate the proposed purchase of the apple press. Please see below for the analysis:
Year | Net income | Depreciation | Cash flows | PV Factor | NPV |
2012 | ($950,000) | 1.0000 | ($950,000) | ||
2013 | $95,000 | $135,714 | $230,714 | 0.9091 | $209,740 |
2014 | $95,000 | $135,714 | $230,714 | 0.8264 | $190,673 |
2015 | $95,000 | $135,714 | $230,714 | 0.7513 | $173,339 |
2016 | $95,000 | $135,714 | $230,714 | 0.6830 | $157,581 |
2017 | $95,000 | $135,714 | $230,714 | 0.6209 | $143,255 |
2018 | $95,000 | $135,714 | $230,714 | 0.5645 | $130,232 |
2019 | $95,000 | $135,714 | $230,714 | 0.5132 | $118,393 |
NPV | $173,214 |
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