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ABC Ltd is considering an investment in a machine that would cost200,000, payable immediately. The machine has an expected life of 5 years. At the
ABC Ltd is considering an investment in a machine that would cost200,000, payable immediately. The machine has an expected life of 5 years. At the end of that time, it is estimated that the machine could be sold for 25,000. Operating profit before depreciation is as follows: Machine Investment 200,000 Operating Profit before depreciation Year 1 Year 2 Year 3 Year 4 Year 5 50,000 60,000 70,000 50,000 40,000 Instead of making this investment, the business could make an alternative investment with per similar risk and obtain a return of 24% a year. Assuming depreciation to be charged as ht line method. The Maximum expected payback period of the project is 4 years
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