(Memorandum Required) Simon Enterprises Is Considering the Purchase of a Flexible Manufacturing

question 30

Essay

(Memorandum required)
Simon Enterprises is considering the purchase of a flexible manufacturing system. The savings associated with the system are estimated to be as follows: The system will cost £400,000 and will last ten years. The system would have a salvage value of £30,000 at the end of ten years. The company's cost of capital is 8 per cent.
Required:
Prepare a memorandum to management with your recommendation regarding whether Simon Enterprises should purchase the flexible manufacturing system. Include a discussion of qualitative factors that might influence management's decision. Include your supporting calculations (including NPV analysis.)

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Definitions:

Economic Question

A query or issue that pertains to the production, distribution, and consumption of goods and services.

Distribution Question

Refers to how the income or wealth is shared among different groups in society.

Specialization

The process of concentrating on and becoming expert in a particular subject or skill.

Productivity

The measure of output per unit of input, indicating the efficiency with which goods and services are produced.