Calculate the npv of the project

Reference no: EM133164643

Payback Accounting Rate of Return and NPV Question

Epicurus is an organisation that manufactures the "Relax and Enjoy". The organisation is currently considering the purchase of a new machine to avoid environmental fines.

The production director has been considering a number of machines and the most appropriate costs £210,000. The machine will have a useful life of 5 years and is expected to be able to be sold at that time for £20,000. The machine is also more efficient than the one currently used, and the production director anticipates that there will be the following reductions in costs:

Budget Heading	Saving
Labour	2 employees at £27,500 each, these employee costs will be saved in year 1
Electricity	Year 1& 2 £17,500 each year Years 3 4 & 5 £20,500 each year
Reduction in re-workings	Years 1,2 & 3 £14,000 each year Years 4 & 5 £17,000 each year
Reduction in maintenance costs	Years 1 & 2 £7,500 Years 3, 4 & 5 £5,000

The organisation's cost of capital is 12%

Required:

Question 1. Calculate the payback period for the project in years and months

Question 2. Calculate the projects Accounting Rate of Return.

Question 3. Calculate the NPV of the project.

Reference no: EM133164643

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