What is a capital investment decision,and how does it differ from a tactical decision? Give an example of each.
Runder Company is evaluating a proposal to purchase a new machine that would cost $100,000 and have a salvage value of $10,000 in four years.It would provide annual operating cash savings of $10,000,as follows: If the new machine is purchased,the old machine will be sold for its current salvage value of $20,000.If the new machine is not purchased,the old machine will be disposed of in four years at a predicted salvage value of $2,000.The old machine's present book value is $40,000.If kept,in one year the old machine will require repairs predicted to cost $35,000. Dale Davis's cost of capital is 14%. Required: Should the new machine be purchased? Why or why not?
Name two nondiscounting capital investment models.What is meant by "nondiscounting"?
Which model of capital investment decision making is most widely used? Why?