Candid Candles manufactures scented candles. There most popular scents are lemon biscotti and ra spberry whipped cream. The company is looking into purchasing an automated wick cutter to bolster production. The machine would cost $8,000 and could be sold for scrap metal four years later for $2,000.

1. Calculate the NPV of the investment using the following information.

2. Candid Candles will only invest in machines that can break even on the investment within the first year. Based on the payback period, should Candid Candles purchase the machine?

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Relevant Cash Flows at End of Each Year Today 2 3 4 Initial investment (8,000) Annual cash flows from operations (excluding depreciation) 15,000 15,000 15,000 15,000 Cash flow from sale of machine 2,000 Required return on investment 0.10 Income tax rate 0.40 Depreciation method straight-line CCA rate declining balance for income 0.15 tax purposes All CF occur at end of year except for the initial investment.