The management of Chip Manufacturing, Inc., would like to purchase a specialized production machine for $700,000. The
Fantastic news! We've Found the answer you've been seeking!
Question:
The management of Chip Manufacturing, Inc., would like to purchase a specialized production machine for $700,000. The machine is expected to have a life of 4 years, and a salvage value of $100,000. Annual cash maintenance costs will total $30,000. Annual cash inflow from labor and material savings are predicted to be $250,000. The company's required rate of return is 15 percent. The federal tax rate is 30 percent. 1. Calculate the after-tax net income and annual net cash inflow resulting from this investment opportunity. 2. Calculate the payback period. Clearly state your conclusion. 3. Describe the two major weaknesses of the payback method. 4. Calculate the unadjusted (or accounting) rate of return.
Posted Date: