Question
The Jason Company is considering the purchase of a machine that will increase revenues by $24,000 each year. Cash outflows for operating this machine will
The Jason Company is considering the purchase of a machine that will increase revenues by $24,000 each year. Cash outflows for operating this machine will be $11,000 each year. The cost of the machine is $66,000. 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 provided.)
Required:
- Over the five-year period the machine will generate a total of $70,000 in net cash; why is this information not enough by itself for management to decide whether to accept or reject the project?
- Determine the net present value. Does this support your answer in Requirement #1
- Determine the IRR [Rate may be expressed as a range]
- 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
Cost:
Salvage:
Operating cash flows:
Time:
Interest rate:
Cost: Time Amount Pvif Present Value
Of Cash Flows of Cash Flows
Operating
Net Flows Pvifa
__________________
___________________
Net Present Value
============
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