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What is the annual cash flow for years one-eight

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Turrican Ltd is considering whether to purchase a new machine. It will cost $440,000 to purchase and $20,000 to install. It is expected to generate additional annual revenues of $90,000 per year for eight years, at which time it will have no further use or value. The machine will cost an additional $5,000 in electricity to run. The company's required rate of return is 7% (the present value of an annuity of eight years at 7% is 5.97). Ignore depreciation for this question.

Ignore taxes for this question.

Required:

Problem (a) What is the payback period? Show calculations.

Problem (b) What is the cash flow in year zero?

Problem (c) What is the annual cash flow for years 1 - 8?

Problem (d) What is the NPV of this investment?

Problem (e) Should the company accept this project? Why or why not?

Reference no: EM132672748

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