Calculate the payback period for machine b

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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.C%.      IRR pa

Machine A      25%              2.8 years                      $10,666           21%

Machine B        33.3%                                                                       27%

Machine B will cost $20,000 and have estimated annual incremental cash flows of $9,300 for the next 3 years AND an estimated salvage value of $5,900 at the end of the 3year period.

Problem a) Calculate the Payback Period (PBP) for Machine B assuming cash flows are received evenly throughout the year.

Problem b) Calculate the NPV for Machine B if the cost of capital is 6.0% pa and assuming cash flows are received at the end of each year.

Problem c) Explain which machine you would recommend based on all of the information.

Reference no: EM133008427

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