Happy Meal Limited a food manufacturer is considering purchasing a new machine for £320,000. The company is expecting an annual cash inflow of £105,000 from the sale of products and an annual cash outflow of £15,500 for each of the six years of the machine's useful life. The annual cash outflows do not include annual depreciation charges for the machine. The machine is depreciated using a 15% reducing method. The machine is expected to last for six years, with a residual value estimated to be at the rate of 10% of the original cost of the machine. The cost of capital for Happy Meal Limited is 12%. You are required to: (a) Calculate using the following investment appraisal techniques, and provide brief recommendations as to the economic feasibility of acquiring the machine: i. The Payback Period. ii. The Accounting Rate of Return. ii. The Net Present Value. iv. The Internal Rate of Return (to two decimal places)

Happy Meal Limited a food manufacturer is considering purchasing a new machine for £320,000. The company is expecting an annual cash inflow of £105,000 from the sale of products and an annual cash outflow of £15,500 for each of the six years of the machine's useful life. The annual cash outflows do not include annual depreciation charges for the machine. The machine is depreciated using a 15% reducing method. The machine is expected to last for six years, with a residual value estimated to be at the rate of 10% of the original cost of the machine. The cost of capital for Happy Meal Limited is 12%. You are required to: (a) Calculate using the following investment appraisal techniques, and provide brief recommendations as to the economic feasibility of acquiring the machine: i. The Payback Period. ii. The Accounting Rate of Return. ii. The Net Present Value. iv. The Internal Rate of Return (to two decimal places)

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Description: Happy Meal Limited a food manufacturer is considering purchasing a new machine for£320,000. The company is expecting an annual cash inflow of £105,000 from the sale ofproducts and an annual cash outflow of £15,500 for each of the six years of the ma

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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