Turrican Ltd is considering whether to purchase a new machine. It will cost $440,000 to purchase and $20,000 to install. It is expected to generate additional annual revenues of $90,000 per year for eight years, at which time it will have no further use or value. The machine will cost an additional $5,000 in electricity to run. The company's required rate of return is 7% (the present value of an annuity of eight years at 7% is 5.97). Ignore depreciation for this question. Ignore taxes for this question. Required: (a) What is the payback period? Show calculations. (b) What is the cash flow in year zero? (c) What is the annual cash flow for years 1 - 8? (d) What is the NPV of this investment? (e) Should the company accept this project? Why or why not?
Turrican Ltd is considering whether to purchase a new machine. It will cost $440,000 to purchase and $20,000 to install. It is expected to generate additional annual revenues of $90,000 per year for eight years, at which time it will have no further use or value. The machine will cost an additional $5,000 in electricity to run. The company's required
Required:
(a) What is the payback period? Show calculations.
(b) What is the
(c) What is the annual cash flow for years 1 - 8?
(d) What is the
(e) Should the company accept this project? Why or why not?
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