Question
Harry Singh Company is considering investing in a high tech. Machine to replace its current less technologically advanced machine. The cost of the new machine
Harry Singh Company is considering investing in a high tech. Machine to replace its current less technologically advanced machine. The cost of the new machine is $20,000,000 and it is estimated that installation and personnel training costs of $5,000,000 would be incurred. This $5,000,000 will be incurred at the inception of the investment and will be capitalized and amortized over the useful life of the machine which is 5 years. The residual value of the machine is estimated to be $3,000,000 at the end of its useful life. If the new machine is purchased it will offer annual cost savings of $6,000,000 in labor cost, and maintenance of $4,000,000. Annual cost of maintaining and upgrading the new will be $2,000,000. Harry Singh uses a discount rate of 10%.
Calculate the payback period.
Calculate the net present value of the proposed new investment.
Calculate the profitability index.
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