Reference no: EM132528153

BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,000, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by $7,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value.

Instructions

Question 1: Determine the cash payback period.

Question 2: Determine the approximate internal rate of return.

Question 3:  Assuming the company has a required rate of return of 10%, state your conclusion on whether the new machine should be purchased.

Vilas Company is considering a capital investment of $190,000 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $12,000 and $50,000, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment.

Instructions (Round to two decimals.)

Question 1: Compute (1) the cash payback period and (2) the annual rate of return on the proposed capital expenditure.

Question 2: Using the discounted cash fl ow technique, compute the net present value