# BSU Inc. wants to purchase a new machine for $29,300, excluding$1,500 of installation costs. The old

## Question:

BSU Inc. wants to purchase a new machine for $29,300, excluding$1,500 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,000, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by$7,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value.
Instructions
(a) Determine the cash payback period.
(b) Determine the approximate internal rate of return.
(c) Assuming the company has a required rate of return of 10%, state your conclusion on whether the new machine should be purchased.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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