Exercise 12-6

BSU Inc. wants to purchase a new machine for $25,900, excluding $1,200 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $1,700, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by $6,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value.

BSU Inc. wants to purchase a new machlne for $25,900, excluding $1,200 of installation costs. The old machine was bought ve years ago and had an expected economic life of 10 years wlthout salvage value. This old machlne now has a book value of $1,}'00r and BSU Inc. expecE to sell it for that amount. The new machine would decrease operating cost by $6,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, For a sixyear period with no salvage value. Cllck here to view W table. (3) Determine the cash payback period. (Round cash payback perlod to 1 decimai place, e.g. 10.5.} Cash payback period ' years ('0 Determine the approxlrnate internal rate of return. (Round answer to 0 decimal places, e.g. 1 o. For caiculatian purposes, use 5 decimal places as displayed la the factor table provided.) Internal rate of return \"1: (E) Assuming the company has a required rate of return of 10%, determlne whether the new machine should be purchased. The investment E] be accepted