BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of installation costs. The old machine was purchased 5 years ago and had an expected economic life of 10 years with no salvage value. The old machine has a book value of $2,000, and BSU Inc. expects to sell it for that amount. The new machine will decrease operating costs by $7,000 each year of its economic life. The straight- line depreciation method will be used for the new machine for a 6-year period with no salvage value. Click here to view PV table. (a) Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.) Cash payback period years (b) Determine the approximate internal rate of return. (Round answer to O decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Internal rate of return % (c) Assuming the company has a required rate of return of 10%, determine whether the new machine should be purchased. The investment be accepted.
BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of installation costs. The old machine was purchased 5 years ago and had an expected economic life of 10 years with no salvage value. The old machine has a book value of $2,000, and BSU Inc. expects to sell it for that amount. The new machine will decrease operating costs by $7,000 each year of its economic life. The straight- line depreciation method will be used for the new machine for a 6-year period with no salvage value. Click here to view PV table. (a) Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.) Cash payback period years (b) Determine the approximate internal rate of return. (Round answer to O decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Internal rate of return % (c) Assuming the company has a required rate of return of 10%, determine whether the new machine should be purchased. The investment be accepted.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
A9
Transcribed Image Text:BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of installation costs. The old machine was purchased 5 years
ago and had an expected economic life of 10 years with no salvage value. The old machine has a book value of $2,000, and BSU Inc.
expects to sell it for that amount. The new machine will decrease operating costs by $7,000 each year of its economic life. The straight-
line depreciation method will be used for the new machine for a 6-year period with no salvage value.
Click here to view PV table.
(a)
Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.)
Cash payback period
years
(b)
Determine the approximate internal rate of return. (Round answer to O decimal places, e.g. 13%. For calculation purposes, use 5 decimal
places as displayed in the factor table provided.)
Internal rate of return
%
(c)
Assuming the company has a required rate of return of 10%, determine whether the new machine should be purchased.
The investment
be accepted.
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