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Company is looking at purchasing a machine. The machine costs $50,000, has a useful life of 4 years and salvage value of $5,000. The machine
Company is looking at purchasing a machine. The machine costs $50,000, has a useful life of 4 years and salvage value of $5,000. The machine should generate a cash flow of $25,000 per year. The income tax rate for the company is 35%. The company uses straight-line depreciation.
1. What is the net present value of this using a 10% discount rate?
2. Using the above information, what is the payback period in years?
3. What is the biggest weakness of the payback period method?
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