V. Soaking Wet, Inc., a manufacturer of gears for lawn sprinklers, is thinking about adding...
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V. Soaking Wet, Inc., a manufacturer of gears for lawn sprinklers, is thinking about adding a new fully automated machine The machine can produce gears that the company now produces on its third shift. The machine has an estimated life of ten years and will cost $800,000, with no salvage value. Gross cash revenue from the machine will be about $520,000 per year, and related operating expenses, including depreciation, should total $500,000. Depreciation is on a straight-line basis. The payback period should be five years or less. The firm's cost of capital is 12%. (20 pts) Use the payback method to determine whether the company should invest in the new machine. Show your computations to support your answer. Soaking Wet, Inc. Management has decided that only capital investments that yield at least a 5 percent return will be accepted. Using the accounting rate-of-return method, decide whether the company should invest in the machine. Show your computations to support your answer What is the project's NPV? Calculate the project's IRR by using an iterative approach. a. b. c. d
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