Calculate the net present value of the machine

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Question - Sunshine Coast Company is investigating the viability of installing a new machine to expand their operations. The machine under consideration will require an initial outlay of $215,000. If purchased, the new machine will generate before-tax net cash inflows of $55,000 per annum. The term of the project is eight years. At the end of the eight years, the machine is expected to have a salvage value of $40,000. The company has a required rate of return of 15%. Assume the company is fully integrated with the imputation tax system so investments will be evaluated on a pre-tax basis.

Required -

(a) Record the relevant cash-flows for installing a new machine on a time (cash-flow) diagram OR a table.

(b) Calculate the net present value of the machine.

(c) Calculate the profitability index of the machine.

(d) Calculate the internal rate of return of the machine.

(e) Calculate the payback period of the machine.

(f) List five of the advantages that are associated with the use of the NPV for project evaluation.

Reference no: EM133069417

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