Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A company wants to replace a machine with a better version. The replacement machine will require a net investment of $ 2 0 0 ,

A company wants to replace a machine with a better version. The replacement machine will require a net investment of $200,000 and is expected to generate free cash flow of $100,000 per year for the next 5 years. The company requires 10% return on capital investments of this sort and desires a 48month pay back period. The existing machine would continue to function for the next five years if it is not replaced, but gradually become less useful. Free cash flows for the existing machine are forecasted to be $80,000 in year 1,$60,000 in year 2,$40,000 in year 3,$20,000 in year 4 and $10,000 in year 5.
What is the incremental cash flow for year 1? Answer: $20,000
What is the incremental cash flow for year 2? Answer: $40,000
What is the incremental cash flow for year 3? Answer: $60,000
What is the incremental cash flow for year 4? Answer: $80,000
What is the incremental cash flow for year 5? Answer: $90,000
What is the net present value of this scenario? Answer: $6,842.5530
What is the internal rate of return for this scenario? Answer: 11.07%
How many months is the pay back period for this scenario? Answer: 48 months (4.0 years)
Can you please explain the answers math ?
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Finance Transactions Policy And Regulation

Authors: Hal Scott, Anna Gelpern

23rd Edition

1647084105, 978-1647084103

More Books

Students also viewed these Finance questions