Allgood Incorporated is considering purchasing a new machine to replace a current machine. The new machine will cost $390,000 and use working capital of $9,000. The current machine can be sold for $6,500. The new machine has a five-year useful life and no salvage value. The hurdle rate is 8 percent. If the new machine is purchased, the operating cash inflows are listed below:

• Year 1 " $130,000.
• Year 2 " $130,000.
• Year 3 " $130,000.
• Year 4 " $130,000.
• Year 5 " $130,000 (this includes the $9000 release of working capital).

Instructions

For this assignment, address the following:

• Calculate the following elements of a capital budget (ignoring income taxes for this step):The payback period.
• Accounting rate of return.
• Internal rate of return.
• Assuming an income tax rate of 40 percent, calculate the net present value. Remember to calculate the after-tax cash flows from operations and the tax savings from depreciation expense in your analysis.
• Should Allgood purchase the machine? Write 3"4 page justifying your position. Include a discussion of what qualitative factors you would consider.

Additional Requirements

• Written communication: Writing is free of errors that detract from the overall message. Show work for all calculations.
• APA formating: Resources and citations adhere to current APA and formatting standards.
• Length: 3"4 page plus required calculations (in Excel or in a table placed in Word).
• Font: Times New Roma12 point.