Mary is faced with the option of investing in a specialized machine for 35.8 million ISK. Income
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Question:
Mary is faced with the option of investing in a specialized machine for 35.8 million ISK. Income and expenses from the machine are estimated as follows in ISK:
Years | Income from machine | Operating costs of the machine |
0 | 0 | 1.200.000 |
1 | 12.000.000 | 1.300.000 |
2 | 12.000.000 | 1.400.000 |
3 | 12.000.000 | 1.500.000 |
4 | 12.000.000 | 1.600.000 |
5 | 12.000.000 | 0 |
A return of 12% is made. The machine's hard value is rated zero. All amounts are paid in cash. There is no income tax in the example.
a) What is the net present value of the investment (Net Present Value)?
b) What is the internal interest rate of the investment (Internal Rate of Return)?
c) What is the payback period of the investment (Payback Period)?
d) Should this investment be approved according to rules applicable to points a), b), c)? Why / why not?
Related Book For
Financial Reporting and Analysis
ISBN: 978-1259722653
7th edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
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