Reference no: EM132543200

BTMS Inc. wants to purchase a new machine for $30,000, excluding $500 ofinstallation costs. The old machine was bought five years ago and had an expected economiclife of 10 years without salvage value. This old machine now has a book value of $2,000, and BTMS Inc. expects to sell it for that amount. The new machine would decrease operating costs by $8,000 each year of its economic life. The straight-line amortization method would be used for the new machine, for a five-year period with no salvage value. Instructions:

Question (a) How to Determine the cash payback period;

Question (b) Determine the approximate internal rate of return;

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