Question
DEF Inc. is considering the purchase of one of two machines. The cost of capital is 9% and the tax rate is 22%. The machines'
DEF Inc. is considering the purchase of one of two machines. The cost of capital is 9% and the tax rate is 22%. The machines' details are:
Machine 1 | Machine 2 | |
Cost | 5,00,000 | 7,50,000 |
Expected life | 6 years | 5 years |
Annual Income before Depreciation & Tax | 2,00,000 | 3,00,000 |
Depreciation | Straight line basis | Straight line basis |
Requirements:
- Calculate the discounted payback period.
- Calculate NPV.
- Calculate IRR.
- Compare the cash flows.
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Financial Accounting Tools for Business Decision Making
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine
6th Canadian edition
1118644948, 978-1118805084, 1118805089, 978-1118644942
