A manufacturing company has $1 million in cash reserves. The management team is considering using these funds to purchase new machinery that is expected to increase production and generate a substantial return in one year. Before proceeding, the team needs to determine if this investment is financially sound. What is the most appropriate benchmark against which the expected return from the new machinery should be compared?
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Future Opportunity Cost of an Investment
Common Basis for Investment Comparison
A manufacturing company has $1 million in cash reserves. The management team is considering using these funds to purchase new machinery that is expected to increase production and generate a substantial return in one year. Before proceeding, the team needs to determine if this investment is financially sound. What is the most appropriate benchmark against which the expected return from the new machinery should be compared?
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Rationale for Investment Benchmarking
Critique of an Investment Strategy
A company is considering a one-year investment project that is expected to yield a real return of 3%. The guaranteed real interest rate available from investing the same funds in a risk-free financial asset is 4%. Based on this information, the company should undertake the project.