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Anthony company is contemplating the purchase of a large piece of machinery for $80,000. Anthony anticipates that the machine will have a 5-year life, have
Anthony company is contemplating the purchase of a large piece of machinery for $80,000. Anthony anticipates that the machine will have a 5-year life, have annual cash flows of $20,000 and a salvage value (at the end of year 5) of $10,000. Anthony assigns a cost of capital or minimum rate of return of 14% for the project. (ignore income taxes) PLEASE SHOW ALL THE STEPS TO ANSWERS) 1) What is the payback period? 2) What is the internal rate of return (for this part, ignore the salvage value)? 3) What is the net present value? 4) What is the present value index? 5) Based on your answer to (3) and (4), should Anthony buy the machinery? Why or why not
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