Curtis industries is considering the purchase of a new machine. It will cost $80
ID: 2486599 • Letter: C
Question
Curtis industries is considering the purchase of a new machine. It will cost $80,000, last for 10 years, and have no residual value. If purchased, the machine is expected to increase cash inflows by $80,000 per year for 8 years, with $65,000 per year for 8 years in additional cash outlays required to operate the machine. The company uses the straight-line method of depreciation, and desired a 12% minimum rate of return.
The present value factors of $1 due 8 years from now:
8% - .540
10% - .467
12% - .404
14% - .351
The present value factors for an annuity of $1 year due at the end of each of 8 years:
8% - 5.747
10% - 5.335
12% - 4.968
14% - 4.639
a. Determine the payback period
b. Determine the internal rate of return of this investment (to the nearest whole percentage)
c. Determine the net present value of this investment at the desired minimun rate of return.
d. Determine the accounting rate of return of this investment.
Explanation / Answer
a. Determine the payback period
b. Determine the internal rate of return of this investment (to the nearest whole percentage)
c. Determine the net present value of this investment at the desired minimun rate of return.
Cash flow from Operation cash inflows 80000 Less cash outlays 65000 Cash flow from Operation 15000Related Questions
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