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FUN-FOOD Ltd is a manufacturer of ready-made meals. In order to keep up with competition and decrease its costs, FUN-FOOD is considering the purchase of
FUN-FOOD Ltd is a manufacturer of ready-made meals. In order to keep up with competition and decrease its costs, FUN-FOOD is considering the purchase of a highly specialised machine to replace its existing production line. Further information pertaining to the installation of this machine are as follows: The machine will require an initial outlay of $400,000. The machine is expected to be used for 10 years, after which FUN-FOOD intends to sell it for $75,000. As a result of the installation of the machine, FUN-FOOD expects a significant reduction in running costs along with an increase in production capacity. Overall, FUN-FOOD expects the net cash flows to be $80,000 per year, every year for the 10 years of useful life. Required (show all workings): Calculate the payback period (rounded to 2 decimal places) of this investment. Please show all workings. Using an interest rate of 10%, and the discount table provided, calculate the Net Present Value (NPV) of this investment. Please show all workings, Using your findings in parts (a) and (b), determine whether FUN-FOOD should accept this project. Please provide a rationale for your answer. Please show all workings
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