Q. 4The Jason Company is considering the purchase of a machine that will increase revenues by $25,000 each year. Cash outflows for operating this machine will be $11,000 each year. The cost of the machine is $65,000. It is expected to have a useful life of five years with $5,000 salvage value at the end of its useful life. Jason Co has a required rate of return of 8% (Ignore income taxes in this problem. You may use a math calculator, or the tables at the end of the test.)

Required:

1.Over the five-year period the machine will generate a total of $70,000 innet cash; why is this information not enough by itselffor management to decide whether to accept or rejectthe project?

2.Determine the net present value. Does this support your answer in Requirement #1

3.Determine the IRR [Rate may be expressed as a range]

4.Discuss the very different answers from Requirements 1 to 3. Explain why the simple rate of return is not acceptable, and net present value is a good method for assessing projects of this type

[15 marks][16 min]

Cost:

Salvage:

Operating cash flows:

Time:

Interest rate:

Cost:TimeAmountPvifPresent Value

Of Cash Flowsof Cash Flows

Operating

Net FlowsPvifa

__________________

___________________

Net Present Value

============