Question
Robin Inc. is considering purchasing a new machine. The following information is available: Cost of machine $200,000 ($100,000 down, $25,000 at the end of years
Robin Inc. is considering purchasing a new machine. The following information is available:
Cost of machine $200,000 ($100,000 down, $25,000 at the end of years 1-4) Life 10 years Salvage value $5,000 Repairs Year 4, $3,000; Year 8, $2,000 Annual savings Years 1-7, $30,000 per year. Years 8-10, $20,000 per year.
Working capital requirement $10,000
Old machine The company has an old machine that it will not need and will sell if they purchase the new machine.
Cost $160,000
Accumulated depreciation $140,000
Book value $20,000
Sell for $16,000
Loss $4,000
Required: If the required rate of return is 8%, should Robin, Inc. purchase the new machine?
A. Using the net present value method.
B. Using the payback method. The company wants a return within 5 years.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started