Reference no: EM132321946
Question
Levio Ltd is a plastic chair manufacturer and is considering purchasing a new machine. The machine would cost a total of $70,000 with $35,000 payable today and the balance payable in one year's time. It is estimated that this machine would increase contribution at the end of each year, for four years by $23,000 per year.
At the end of 4 years the company would then be able to sell the machine for $5,000. The company has an expected rate of return on all investments of 12%. Required
(a) Determine the Net Present Value for this project.
(b) By using a second discount rate of 20%, estimate the project's Internal Rate of Return .
(c) Based on your calculations, from both parts 1 and 2, recommend whether the project should be accepted.
(d) Briefly discuss whether you feel Internal Rate of Return or Net Present Value, is the best method of appraising projects.