Comfy Critters Is a Factory That Creates Stylish and Comfortable

Essay

Comfy Critters is a factory that creates stylish and comfortable bedding for dogs of all sizes. They are entering their 6^th year of business, and they have decided that one of their largest sewing machines is nearing the end of its useful life. Their production manager, Todd, is trying to help management decide how best to proceed with their next steps. Todd has the choices narrowed down to repairing the current machine (Repair), or replacing the machine with one of two different replacement options (New Machine 1 or New Machine 2). The numbers associated with each of these options are as follows: The company has chosen to utilize the straight-line method of depreciation calculation. The company has utilized a variety means to raise capital, and it is allocated as follows: Comfy Critters has a tax rate of 25% and a Required Rate of Return of 8.4%. (Do not round your calculations.)
a. What is the Weighted Average Cost of Capital (WACC) for Comfy Critters?
b. What are the Return on Investment (ROI), Residual Income (RI), and Economic Value Added (EVA) for the Repair option?
c. What are the Return on Investment, Residual Income, and Economic Value Added for the New Machine 1 option?
d. What are the Return on Investment, Residual Income, and Economic Value Added for the New Machine 2 option?
e. What should Todd recommend to management based on the analyses in parts b, c, and d? Provide as much detail as possible to support that decision.