Reference no: EM132530005

Point 1: Kappa Corp has the opportunity to replace a crucial piece of machinery used in its manufacturing process. The existing machine has a net book value of $35,000, with a remaining useful life of 5 years, and no assumed salvage value. The new machine will cost $275,000, with an estimated useful life of 5 years and a salvage value of $20,000. If Kappa agrees to purchase the new machine, the company selling the new machine will purchase the old machine for $30,000.

Point 2: The existing machine is old and requires frequent repairs. Should Kappa purchase the new machine it anticipates annual savings in operating expenses of $40,000, and an increase in its annual net income of $24,000.

Point 3: Kappa depreciates all machinery on a straight-line basis and requires that all investments must have a minimum required rate of return of 12%.

Ignore any tax-related computations in responding to the questions below.

Question 1: Using the results from your analysis of payback period, return on investment, and net present value, should Kappa accept this investment opportunity? Please explain the reason for your answer using all three capital budgeting technique conclusions.