Question
1. One-Two-Three Company is considering acquiring a machine that costs $25,000. It is estimated that the machine will generate additional revenues of $15,000 per year
1. One-Two-Three Company is considering acquiring a machine that costs $25,000. It is estimated that the machine will generate additional revenues of $15,000 per year for 5 years. One-Two Three Company requires a minimum return of 12% on all investments. Compute the machines net present value. Should One-Two-Three Company acquire the machine? Why or why not?
2. Bob is the CFO of Stacks Enterprises. He is considering the acquisition of a new piece of equipment with a cost of $50,000 and an installation cost of $2,000. His analysis suggests that the equipment will reduce production costs by $13,717 a year for the next five years.
- Calculate the internal rate of return.
- Stacks Enterprises requires a12% minimum return. Should Stacks Enterprises accept the proposed investment? Why or why not?
3. William's Company is considering purchasing a machine that would cost $403,200 and have a useful life of 9 years. The machine would reduce cash operating costs by $74,667 each year. Compute the payback period for the machine.
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