Payback period, net present value. A company is considering buying a $250,000 produc-

Salvage NPV,$ 12,830 tion machine. It estimates that the machine would cost $12,000 per year to operate, but would save $65,000 annually in labour costs. The machine has a seven-year life and a salvage value of $25,000. Assume all cash flows occur at the end of each year. The company evaluates capital projects using the payback period and net present value (discount rate of 10%). For a project to be acceptable, it must have a payback period of five years or less, and generate a positive net present value.

REQUIRED Based on the company’s criteria, is this an acceptable investment? Explain.

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