Exercise Able Company's management is considering the purchase of a new machine at a cost of $165,000. The machine has a 5 year life expectancy and will generate additional cash flows of $75,000 per year and additional expenses (other than depreciation) of $25,000 per year (all cash). Depreciation will use the straight line method. The time value of money (cost of capital is 10%) Required 1. Compute the Payback period. 2. Compute the Accounting Rate of Return. 3. Compute the Net Present Value. 4. Re-compute the Payback period only if we assume that both revenues and cash expenses increase by 10% each year.

Exercise Able Company's management is considering the purchase of a new machine at a cost of $165,000. The machine has a 5 year life expectancy and will generate additional cash flows of $75,000 per year and additional expenses (other than depreciation) of $25,000 per year (all cash). Depreciation will use the straight line method. The time value of money (cost of capital is 10% ) Required 1. Compute the Payback period. 2. Compute the Accounting Rate of Return. 3. Compute the Net Present Value. 4. Re-compute the Payback period only if we assume that both revenues and cash expenses increase by 10% each year