Home whitegoods manufacturer, Mozzi Ltd, is evaluating the purchase of a new machine that will cost $580

Question:

Home whitegoods manufacturer, Mozzi Ltd, is evaluating the purchase of a new machine that will cost $580 000 and be paid for in cash. The machine will be depreciated over 10 years with a resale value at the end of $60 000. Annual before-tax cash savings from better productivity are expected to be $60 000. The company has a cost of capital of 10%. Assume an income tax rate of 30%.

Required

A. Determine the annual after-tax cash savings from the machine.

B. What is the payback period for the investment?

C. What is the net present value of the investment?

Net Present Value
What 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... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... 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,...

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