Suppose the University of Toronto Faculty of Applied Science and Engineering is considering the purchase of a

Question:

Suppose the University of Toronto Faculty of Applied Science and Engineering is considering the purchase of a special-purpose machine for $60,000. It is expected to have a useful life of three years with no terminal salvage value. The university’s controller estimates the following savings in cash operating costs:

Excel Spreadsheet Template

Year....................Amount

1........................$28,000

2........................26,000

3........................24,000

Compute

1. Payback period.

2. Net present value if the required rate of return is 12 percent.

3. Internal rate of return.

4. Accounting rate of return on (a) the initial investment and (b) the “average investment.

Net Present Value
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