Consider each case below independently. Ignore income taxes.
1. Slade Company’s required rate of return is 15%. The company can purchase a new machine at a cost of $40,350. The new machine would generate cash inflows of $15,000 per year and have a four-year life with no salvage value. Compute the machine’s net present value. Is the machine an acceptable investment? Explain.
2. Western Products Inc. is investigating purchasing a new grinding machine that has a projected life of 15 years. It is estimated that the machine will save $20,000 per year in cash operating costs. What is the machine’s IRR if it costs $111,500 new?
3. Sunset Press has just purchased a new trimming machine that cost $14,125. The machine is expected to save $2,500 per year in cash operating costs and to have a 10-year life. Compute the machine’s IRR. If the company’s required rate of return is 16%, did it make a wise investment? Explain.

  • CreatedJuly 08, 2015
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