Discussion

Instructions

To complete this assignment, write a 3 page paper in which you address the following items:

  1. Evaluate, discuss, and compare whether to purchase the new equipment or overhaul the old equipment. (Hint: For the old machine, the initial investment is the cost of the overhaul. For the new machine, subtract the salvage value of the old machine to determine the initial cost of the investment.)
    • Using Excel, calculate the net present value of the old backhoes and the new backhoes.
    • Discuss the net present value of each, including what the calculations reveal about whether the company should purchase the new backhoes or continue using the old backhoes.
    • Using Excel, calculate the payback period for keeping the old backhoes and purchasing the new backhoes. (Hint: For the old machines, evaluate the payback of an overhaul.)
    • Discuss the payback method and what the payback periods of the old backhoes and new backhoes reveal about whether the company should purchase new backhoes or continue using the old backhoes. Calculate the profitability index for keeping the old backhoes and purchasing new backhoes.
    • Discuss the profitability index of each, including what the calculations reveal about whether the company should purchase the new backhoes or continue using the old backhoes.
  2. Identify and discuss any intangible benefits that might influence this decision.
  3. Answer the following: Should the company purchase the new backhoes or continue using the old backhoes? Explain your decision.

The specific learning outcome associated with this assignment is:

  • Analyze the financial condition of a company using vertical, horizontal, and ratio analysis to make informed decisions.