The client requires a capital investment analysis to determine the viability of acquiring new machinery. This was done in order to help the client in making the right financial decision.
Before making such analysis, the list of important variables was first considered. Things like purchase price, salvage value, recovery period, asset life, expenses, income tax rate, loans, opportunity cost and inflation rate, and other direct costs were considered. Then, the net present value (NPV) and the internal rate of return (IRR) were calculated. Then, the predicted profitability and the depreciation cost were then made.
The final outcome was a capital investment analysis, which includes the capital, the NPV and IRR calculation, profitability prediction, and finally, the depreciation period.