Scenario: The production department is intending on acquiring a more energy-efficientmachine. The production manager has asked for your help with evaluating two alternativemachine models.Model 1: Requires initial investment of $80,000. The expected cash inflow for thefirst year is $26,000 and this is expected to grow at 2% per annum.Model 2: Requires initial investment of $120,000. The expected cash inflow for thefirst year is $38,000 and this is expected to grow at 2.5% per annum.The expected useful life of both machines are six years. The business requires a rate of returnof 10%.Create a new Excel workbook and complete the requirements below on one sheet. Presenteverything in a tidy and formatted manner.Requirements:Set up columns A and B for the input data and input relevant information from thescenario above.Calculate the following for Model 1 and Model 2 using cell references and functions (i.e., nohard coding):a. Projected future cash flowsb. Net present value (use the NPV function)c.Profitability index (compute as net present value over initial investment)d. Internal rate of return (use the IRR function)e. Payback periodInsert a text box below your completed analysis and comment on which model yourecommend the production manager acquire. (Maximum 150 words)

The term "payback period" refers to the number of years that must pass before the initial monetary…

Answered: Scenario: The production department is…

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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