Question
PLEASE ANSWER WITHOUT SCIENTIFIC CALCULATOR Bobs Ice Cream Parlor in Lawrence, KS is famous for its gourmet ice cream. However, some customers have asked for
PLEASE ANSWER WITHOUT SCIENTIFIC CALCULATOR
Bobs Ice Cream Parlor in Lawrence, KS is famous for its gourmet ice cream. However, some customers have asked for a healthy, low-cal, soft yogurt. The machine that makes this confection is manufactured in Italy and costs $5,000 plus $1,750 installation. Bob estimates that the machine will generate a net cash flow of $2,000 a year. Bob also estimates the machines life to be 10 years and that it will have a $400 salvage value. His cost of capital is 15 percent. Bob thinks the machine is overpriced. Is he right? Support your answer by NPV, IRR, and PI calculations. What is a payback period?
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