Managerial Accounting Capital Investment Decision: Comprehensive
Managerial AccountingChapter 10 – P4. Capital Investment Decision: ComprehensiveEdge Company’s Production vice president believes keeping up-to-date with technological changes is what makes the company successful and feels that a machine introduced recently would fill an important need. The machine has an estimated useful life of four years, a purchase price of $250,000 and a residual value of $25,000. The company controller has estimated average annual net income of $11,250 and the following cash flows for the new machines:Cash flow EstimatesYear Cash inflows Cash outflows Net cash Inflows1 325,000 250,000 75,0002 320,000 250,000 70,0003 315,000 250,000 65,0004 310,000 250,000 60,000The company uses a 12% minimum rate of return and a three-year payback period for capital investment evaluation processes.