A machine costs 1.800 and has a residual value of 0. Management uses a cost of capital of 8%.

Part A

Assume that the machine will generate cash flows of 600, 700 and 800 over the next three years.

a) What is the net present value of investing in the machine?

b) What is the payback time (based on yearly cash flows)?

c) Estimate the IRR.

Part B:

Assume that the machine generates an average EBITDA (profit before interests, taxes, depreciation and amortization) of 700 per year (for three years).

d) What is the average yearly profit (profit comparison method)?

e) What is the payback time (based on average EBITDA)?