A company, Innovate Tools Ltd., is considering purchasing a new machine for $500,000. The machine has a useful life of 8 years and will have no salvage value at the end of its useful life. The company expects the machine to generate an additional $120,000 in net cash inflows annually. The company's cost of capital is 10%. Calculate the following: 1. Annual depreciation expense (using straight-line method). 2. Net present value (NPV) of the machine using the company's cost of capital. 3. Payback period for the machine. 4. Internal Rate of Return (IRR).

Intermediate Financial Management (MindTap Course List)
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ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
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A company, Innovate Tools Ltd., is considering purchasing a new
machine for $500,000. The machine has a useful life of 8 years and will
have no salvage value at the end of its useful life. The company expects
the machine to generate an additional $120,000 in net cash inflows
annually. The company's cost of capital is 10%. Calculate the
following:
1. Annual depreciation expense (using straight-line method).
2. Net present value (NPV) of the machine using the company's cost
of capital.
3. Payback period for the machine.
4. Internal Rate of Return (IRR).
Transcribed Image Text:A company, Innovate Tools Ltd., is considering purchasing a new machine for $500,000. The machine has a useful life of 8 years and will have no salvage value at the end of its useful life. The company expects the machine to generate an additional $120,000 in net cash inflows annually. The company's cost of capital is 10%. Calculate the following: 1. Annual depreciation expense (using straight-line method). 2. Net present value (NPV) of the machine using the company's cost of capital. 3. Payback period for the machine. 4. Internal Rate of Return (IRR).
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