BSU Inc. wants to buy a new machine for $29,300 plus $1,500 for installation costs....
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Accounting
BSU Inc. wants to buy a new machine for $29,300 plus $1,500 for installation costs.
OLD machine was purchased 5 years ago (useful life of 10 years, no salvage value). The old machine will be sold which will result in a 2,000 loss on the sale.
NEW machine will decrease operating costs by $7,000 each year of its useful life. The straight-line depreciation will be used for the new machine for a 6-year period with no salvage value.
Instructions
(a) Determine the cash payback period.
(b) Determine the approximate internal rate of return.
(c) Assuming a required rate of return of 10%, should the new machine be purchased?
(a) (What amount + or what amounts) (answer)
Total *net investment =
Annual net cash flow =
-------------------
Payback period
.
(* net means after you add and or subtract pertinent amounts)
(b) Present Value
Net annual cash flows
Less capital investment
Net present value
(c)
your decision AND WHY?
Answer & Explanation
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