Fitness Company is considering the purchase of a new fitness training machine. Management is choosing between...
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Fitness Company is considering the purchase of a new fitness training machine. Management is choosing between two possible new machines: Model A and Model B. Either machine would cost $50,000, and each machine has an estimated useful life of 5 years. Neither machine will have a residual value at the end of its useful life. The annual NET cash inflows (ie. total annual cash inflows generated from machine minus total annual cash outflows required to operate machine) over the next five years are as follows: Model A Model B Year 12345 5 $ 6,000 13,000 20,000 25,000 20,000 $ 16,500 16,500 16,500 16,500 16,500 Required: 1.) Compute the Payback Period for each machine. 2.) Compute the Net Present Value of each machine. The company's minimum required rate af return is 10%. Based on the Net Present Value calculations, are these attractive investments? Which machine should be purchased? Fitness Company is considering the purchase of a new fitness training machine. Management is choosing between two possible new machines: Model A and Model B. Either machine would cost $50,000, and each machine has an estimated useful life of 5 years. Neither machine will have a residual value at the end of its useful life. The annual NET cash inflows (ie. total annual cash inflows generated from machine minus total annual cash outflows required to operate machine) over the next five years are as follows: Model A Model B Year 12345 5 $ 6,000 13,000 20,000 25,000 20,000 $ 16,500 16,500 16,500 16,500 16,500 Required: 1.) Compute the Payback Period for each machine. 2.) Compute the Net Present Value of each machine. The company's minimum required rate af return is 10%. Based on the Net Present Value calculations, are these attractive investments? Which machine should be purchased?
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Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
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