Reference no: EM133097202
HRM732 - Introduction to Financial & Management Accounting
Team Members Notification (changes only) - November 24, 2021 Lifetime Inc. wants to buy a new machine to be used in products that will replace an existing manual system. The cost of the new machine is $2,990,000. The equipment will last six years with no expected salvage value. The expected cash flows related to the implementation of the new machine is below.
Year Cash Inflows Cash Outflows
1 $1,600,000 $950,000
2 1,600,000 950,000
3 1,600,000 950,000
4 1,600,000 950,000
5 1,600,000 950,000
6 1,600,000 950,000
Required:
a) Explain the concept of capital budgeting
b) Discuss the advantages and disadvantages of non-discounted and discounted capital budgeting approaches
c) Using both non-discounted and discounted capital budgeting approaches, determine if the company should replace the existing manual system with the purchase of this machine.