What is the payback period

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Reference no: EM133010203

Question - Rosedale Co. is evaluating the purchase of a new machine that would dramatically increase the speed of manufacturing of their golf balls and save the company money. The cost of the new machine is $60,000.

Management's forecast of the incremental cash flows are as follows:

Year Cash Flow

1 $27,000

2 $28,000

3 $31,000

4 $19,000

5 $12,000

Required - Make sure to show ALL work:

What is the net present value (NPV) if the company's cost of capital is 12%?

What is the payback period?

Net present value is a common method of evaluating future investments since it incorporates the time value of money and the company's cost of capital. Discuss another advantage of the NPV method.

Discuss 2 concerns/issues with the NPV evaluation method.

Reference no: EM133010203

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