Question #6:

Brandos Carmel Apples produces and sells caramel apples. The apples are dipped by hand. The owner would like to purchase a machine that will automate the process of making the caramel apples. After researching the machines, the owner found a machine that he thought would be perfect for his company. The machine will cost $262,000. In addition, the manager projected that the new caramel apple machine will increase the companys annual net cash inflows by $40,300. Also, he estimated that the machine will have a 12-year useful life with no salvage value.

Required:

(a) Calculate the cash payback period.

(b) Calculate the machines internal rate of return.

(c) Calculate the machines net present value using a discount rate of 10%.

(d) Assuming Brandos Caramel Apples cost of capital is 10%, is the investment in this machine acceptable? Why or why not?