Garuda, Ltd. intends to buy a new machine for the production of card boxes. The...
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Accounting
Garuda, Ltd. intends to buy a new machine for the production of card boxes. The machine costs $1,000,000 and can be used for 20 years, at which time it will become worthless. Garuda plans to upgrade to a new model in 10 years when it will be sold for $400,000. Sales revenues from the machine are expected to be $300,000 per year for the first four years of use and $250,000 in Year 5. The company uses the straight-line depreciation method for its non-current assets and requires the investment to be paid back within three years. Garudas cost of capital is 15%.
Required:
Calculate the Accounting Rate of Return (ARR).
Calculate the Payback Period (PP).
Calculate the Net Present Value (NPV).
Should Garuda accept this project or not? Explain.
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