Edge Company’s production vice president believes keeping up-to-date with technological changes is what makes the company successful and feels that a machine introduced recently would fill an important need. The machine has an estimated useful life of four years, a purchase price of $250,000, and a residual value of $25,000. The company controller has estimated average annual net income of $11,250 and the following cash flows for the new machine:

The company uses a 12 percent minimum rate of return and a three-year payback period for capital investment evaluation purposes.

1. Analyze the data about the machine. Use the following evaluation approaches in your analysis:
(a) The net present value method (Round to the nearest dollar.)
(b) The accounting rate-of-return method (Round to one decimal place.)
(c) The payback period method (Round to one decimal place.)
2. Summarize the information generated in requirement 1, and make arecommendation.

  • CreatedMarch 26, 2014
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