Panayiotis, the owner and manager of Micos Ltd., is evaluating the acquisition of new equipment needed to attend a new line of business. He has two alternatives: either buy two small machines or one large and more automatic machine:

REQUIRED
1. Determine the payback period in years.
2. Determine the present value of total recurring cash flows.
3. Determine the net present value of the project.
4. Do you estimate that the IRR of the project is higher or lower than 5%?
5. If both projects were independent, would you accept them?

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all Machines By Large Machine Buy 2 Sm $100,000 per machine Net initial investment to acquire the asset Useful life of the acquired asset Recurring cash inflow per year Recurring cash outflow per year Required rate of return for both projects $250,000 4 years both machines 5 years 70,000 S 5,000 per machine 70,000 15,000 5%