Question
LJH plc is planning to buy a machine which will cost 900,000 and which is expected to generate new cash sales of 600,000 per year.
LJH plc is planning to buy a machine which will cost 900,000 and which is expected to generate new cash sales of 600,000 per year. The expected useful life of the machine will be eight years, at the end of which it will have a scrap value of 100,000. Annual costs are expected to be 400,000 per year. LJH plc has a cost of capital of 11 per cent. (a)Calculate the payback period, return on capital employed, net present value and internal rate of return of the proposed investment. (b)Discuss the reasons why net present value is preferred by academics to other methods of evaluating investment projects.
[Head, Antony/Watson, Denzil. Corporate Finance 8th edition Enhanced eBook]
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