Question
Niagria International, a manufacturer of industrial sprinkler systems is currently entertaining the thought of building a machine to create sprinkler systems for homes. The machine
Niagria International, a manufacturer of industrial sprinkler systems is currently entertaining the thought of building a machine to create sprinkler systems for homes. The machine has an estimated useful life of nine years and will cost $880,000. The residual value of the new machine is $150,000. Gross cash revenue from the machine will be about $640,000 per year, and related annual operating expenses, including depreciation, should total $590,000. The payback period should be seven years or less. Use the payback period method to determine whether the company should invest in the new machine. Show your computations to support each of your answers (a simple number will receive no credit). a) How much is the annual depreciation? b) Calculate the Payback Period. How long is it? c) Should the new machine be accepted or rejected? Why?
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