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ABC Incorporated manufactures the best products in town. Because the business is thriving several departments...

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Accounting

ABC Incorporated manufactures the best products in town. Because the business is thriving several departments need an investment of additional resources to accommodate their expanding needs. The management at ABC must decide which investment is the best option for the company. ABC uses a 12% discount rate in evaluating capital investments. ABC uses straight-line depreciation. The average reported operating income for the company is $1,630,500.The options are enumerated below.Option 1: Purchase a new machine for the Production Department for $550,000. The machine will increase productivity by 6% and all of the additional units manufactured can be sold. The cost of the machine is $550,000 and it has a 10-year life.The net cash inflow is expected to be $127,000 each year for 10 years.You may use Excel's built-in functions for NPV and IRR or you may make the calculations using the appropriate present value table. Compute the following for the option:1. Payback period/method (assume cash inflows occur evenly throughout the year)2. Unadjusted rate of return (also called simple rate of return and accounting rate of return)3. NPV (assume that cash inflows occur at year-end)4. Internal rate of return (IRR)5. Present Value Index

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