Bradshaw Bakeries Ltd is evaluating investment alternatives for three machines and has compiled the following relevant information:
Question:
Bradshaw Bakeries Ltd is evaluating investment alternatives for three machines and has compiled the following relevant information:
Investment | |||||||||||
Machine M1 | Machine M2 | Machine M3 | |||||||||
Initial investment | $600000 | $860 000 | $560000 | ||||||||
Net cash inflows: Year 1 2 3 4 5 6 | $ 140000 140000 140000 140000 140000 140000 | $ 240000 240000 240000 240000 240000 | $ 180000 180 000 180 000 180 000 | ||||||||
The company requires a 10% minimum return on new investments.
Required
A. Calculate the payback period for each investment.
B. Calculate the net present value for each investment.
C. Determine the net present value index for each investment.
D. Based on your analysis in requirements A, B and C above, which machine (if any) should be purchased?
Net Present ValueWhat 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... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
Step by Step Answer:
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett