Sandhill Inc. wants to purchase a new machine for $37,840, excluding $1,300 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 $2,100, and Sandhill Inc. expects to sell it for that amount. The new machine will decrease operating costs by $8,000 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 the factor table. (a) Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.) Cash payback period enter the cash payback period in years rounded to 2 decimal places years (b) Determine the approximate internal rate of return. (Round answer to 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Internal rate of return enter the internal rate of return in percentages rounded to 0 decimal places % (c) Assuming the company has a required rate of return of 6%, determine whether the new machine should be purchased. The investment select an option shouldshould not be accepted.
Sandhill Inc. wants to purchase a new machine for $37,840, excluding $1,300 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 $2,100, and Sandhill Inc. expects to sell it for that amount. The new machine will decrease operating costs by $8,000 each year of its economic life. The straight-line
Click here to view the factor table.
(a)
Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.)
| Cash payback period | enter the cash payback period in years rounded to 2 decimal places | years |
(b)
Determine the approximate
| Internal rate of return | enter the internal rate of return in percentages rounded to 0 decimal places % |
(c)
Assuming the company has a required rate of return of 6%, determine whether the new machine should be purchased.
|
The investment select an option shouldshould not be accepted.
|
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
