Refer to 12.23.

Required:

Calculate the payback period of Simpson Business for this machine.

12.23

The Simpson Business is considering buying a machine that would increase the business' cash receipts by \(\$ 3300\) per year for five years. Operation of the machine would increase the business' cash payments by \(\$ 150\) in each of the first two years, \(\$ 300\) in the third and fourth years, and \(\$ 4500\) in the fifth year. The machine would cost \(\$ 9000\) and would have a residual value of \(\$ 750\) at the end of the fifth year.

Required:

a Assuming a 16 per cent required rate of return, calculate the net present value of the machine investment being considered by Simpson Business.

b Should Simpson Business make the investment? Why or why not?