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Century Lab plans to purchase a new centrifuge machine for its New Hampshire facility. The machine costs $279,000 and is expected to have a useful
Century Lab plans to purchase a new centrifuge machine for its New Hampshire facility. The machine costs $279,000 and is expected to have a useful life of 7 years, with a terminal disposal value of $50,000. Savings in cash operating costs are expected to be $63,000 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $30,000 needs to be maintained at all times, but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Century Lab's required rate of return is 10%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Century Lab uses straight-line depreciation for its machines. Read the requirements. Requirement 1. Calculate net present value. (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) The net present value is Requirements 1. Calculate net present value. 2. Calculate internal rate of return. 3. Calculate accrual accounting rate of return based on net initial investment. 4. Calculate accrual accounting rate of return based on average investment. 5. You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods
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