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What is the payback period of the system

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Reference no: EM133004272

Question - A company is considering the purchase of a new machine. The cost of the system is $30,000 and its expected life is 3 years. During that time, the system will generate annual cost savings of $13,000.

(a) What is the payback period of the system? Based on the payback period, should the company buy the machine?

(b) Assuming the cost of capital is 10% p.a., what is the net present value of the system to the nearest whole dollar? Based on the NPV calculation, should the company buy the machine?

(c) Explain the difference between your answers to (a) and (b) above.

Reference no: EM133004272

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