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A production machine purchase amounts to 800000€ . Its economic lifetime is 10 years. Residual value has been estimated to be 70000€ . The investment would yield 230000€ extra revenue per year and the annual running costs are 120000€ . The company's profit demand for this type of investment is 12% and it allows maximum five years' payback time for its investments. Calculate the profitability of the investment with the following methods: a) Net Present Value method b) Annuity method c) Internal rate of interest method d) Payback method

A production machine purchase amounts to 800000€ . Its economic lifetime is 10 years. Residual value has been estimated to be 70000€ . The investment would yield 230000€ extra revenue per year and the annual running costs are 120000€ . The company's profit demand for this type of investment is 12% and it allows maximum five years' payback time for its investments. Calculate the profitability of the investment with the following methods: a) Net Present Value method b) Annuity method c) Internal rate of interest method d) Payback method

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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3. A production machine purchase amounts to 800000€ . Its economic lifetime is 10 years. Residual value has been estimated to be 70000€ . The investment would yield 230000€ extra revenue per year and the annual running costs are 120000€ . The company's profit demand for this type of investment is 12% and it allows maximum five years' payback time for its investments. Calculate the profitability of the investment with the following methods: a) Net Present Value method b) Annuity method c) Internal rate of interest method d) Payback method

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