BSU Inc. wants to buy a new machine for $29,300 plus $1,500 for installation costs.

OLD machine was purchased 5 years ago (useful life of 10 years, no salvage value). The old machine will be sold which will result in a 2,000 loss on the sale.

NEW machine will decrease operating costs by $7,000 each year of its useful life. The straight-line depreciation will be used for the new machine for a 6-year period with no salvage value.

Instructions

(a) Determine the cash payback period.

(b) Determine the approximate internal rate of return.

(c) Assuming a required rate of return of 10%, should the new machine be purchased?

(a) (What amount + or what amounts) (answer)

Total *net investment =
Annual net cash flow =	-------------------
Payback period

.

(* net means after you add and or subtract pertinent amounts)

(b) Present Value

Net annual cash flows
Less capital investment
Net present value

(c)

your decision AND WHY?