Nucore Company is thinking of purchasing a new candy-wrapping machine at a cost of $370,000. The machine
Question:
Nucore Company is thinking of purchasing a new candy-wrapping machine at a cost of $370,000.
The machine should save the company approximately $70,000 in operating costs per year over its estimated useful life of 10 years. The salvage value at the end of 10 years is expected to be $15,000. (Ignore income tax effects.)
Required:
1. What is the machine’s payback period?
2. Compute the net present value of the machine if the cost of capital is 12%.
3. What is the expected internal rate of return for this machine?
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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1 Payback period 370000 70000 529 years 2 Net present value Cost of machine 370000 10000 370000 Cost ...View the full answer
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Related Book For 
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain
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