Karisma Ltd. manufactures signs and trophies. Ms. Karol is considering

Karisma Ltd. manufactures signs and trophies. Ms. Karol is considering investing in a new machine that will save annual material costs of $14,000 and labour costs of $6,000. The new machine costs $60,000 and has a five-year life and a terminal disposal price of zero. Karisma's income tax rate is 30%, and the after-tax required rate of return is 7%. Karisma uses four years as a cut-off when evaluating an investment project. The capital cost allowance rate for this new machine is 20%, with a declining balance.
REQUIRED
A. What is the net present value for this investment?
B. What is the profitability index for this investment?
C. What is the payback period for this investment?
D. Should Karisma invest in the new machine?
Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...