Calculate the NPV for Machine B

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Problem - A company is considering two alternative investments in a machine as part of a workshop upgrade. Partial results of some financial analysis are as follows:

 

ARR

Payback Period

NPV @ 6%

IRR pa

Machine A

45%

2.5 years

$21,666

32%

Machine B

61%

 

 

52%

Machine B will cost $16,000 and have estimated annual incremental cash flows of $10,000 for the next 3 years AND an estimated salvage value of $8,000 at the end of the 3 year period.

Required -

How do calculate the Payback Period (PBP) for Machine B assuming cash flows are received evenly throughout the year?

How do calculate the NPV for Machine B if the cost of capital is 6% pa and assuming cash flows are received at the end of each year.

Reference no: EM132839465

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