A baked goods manufacturer is considering replacing a machine at one of its factories with a newer, more efficient model. The old machine is fully depreciated with no salvage value. The new machine costs $200,000 and has an estimated useful life of 20 years with a $4,000 salvage value. The company depreciates its machinery using the straight-line method. The new machine would provide $25,000 in annual cash savings to the company over its useful life. Assume the annual cash flows occur at the end of the year and ignore income tax effects. Assume a 10% discount rate. Required: Calculate the following. Payback period (round to one decimal place) Simple rate of return (stated in percentage, rounded to one decimal place, e.g., 8.1% Net Present Value (round to the nearest dollar, enter negative NPV with minus sign) years %
A baked goods manufacturer is considering replacing a machine at one of its factories with a newer, more efficient model. The old machine is fully depreciated with no salvage value. The new machine costs $200,000 and has an estimated useful life of 20 years with a $4,000 salvage value. The company depreciates its machinery using the straight-line method. The new machine would provide $25,000 in annual cash savings to the company over its useful life. Assume the annual cash flows occur at the end of the year and ignore income tax effects. Assume a 10% discount rate. Required: Calculate the following. Payback period (round to one decimal place) Simple rate of return (stated in percentage, rounded to one decimal place, e.g., 8.1% Net Present Value (round to the nearest dollar, enter negative NPV with minus sign) years %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A baked goods manufacturer is considering replacing a machine at one of its factories with a newer, more efficient model. The old
machine is fully depreciated with no salvage value. The new machine costs $200,000 and has an estimated useful life of 20 years with
a $4,000 salvage value. The company depreciates its machinery using the straight-line method. The new machine would provide
$25,000 in annual cash savings to the company over its useful life. Assume the annual cash flows occur at the end of the year and
ignore income tax effects. Assume a 10% discount rate.
Required: Calculate the following.
Payback period (round to one decimal place)
Simple rate of return (stated in percentage, rounded to one decimal
place, e.g., 8.1%
Net Present Value (round to the nearest dollar, enter negative NPV with
minus sign)
years
%
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