Calculate the payback period for the machine

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A machine can be purchased for $10,500 including transportation charges, but installation costs will require $1,500 more. The machine is expected to last four years and produce annual cash revenues of $6,000. Annual cash-operating expenses are expected to be $2,000, with depreciation of $3,000 per year. The firm has a 30 percent tax rate.

a) Determine the relevant after-tax cash flows and prepare a cash-flow schedule.

b) Calculate the payback period for the machine.

c) If the project's cost of capital is 10%, would you recommend buying the machine?

d) Estimate the internal rate of return for the machine.

Reference no: EM131348601

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