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ABC Corp. is considering purchasing a machine with a cost of $65,000. The machine's lifespan...

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Accounting

ABC Corp. is considering purchasing a machine with a cost of $65,000. The machine's lifespan is 4 years, and it has no residual value. The physical plant manager estimates that using this machine will result in cost savings over the next four years as follows:
Year Amount
1 $25,000
2 $22,000
3 $21,000
4 $20,000
Total $88,000
ABC uses a required rate of return of 18% to evaluate its investment projects (or capital budget). Assume two things: 1) the effect of taxes can be ignored in the analysis, and 2) all cash flows are generated at the end of the year except for the initial investment.
Required:
Calculate the following metrics for this investment.
Net Present Value (NPV)
Payback Period
Internal Rate of Return (IRR) using the interpolation method
Accounting Rate of Return. Assume straight-line depreciation. Use the average annual cost savings in operational costs in the numerator of this computation. (Accrual accounting rate of return based on net initial investment).

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