The management of Casey Corporation is considering the purchase of an automated molding machine that would cost $255,552, would have a useful life of 5 years, and would have no salvage value. The automated molding machine would result is cash savings of $64,000 per year due to lower labor and other costs.

Required

1. Determine the internal rate of return on the investment in the new automated molding machine. Show your work!

2. If the required rate of return on investments is 12%, is the project acceptable?

Problem 2--Net Present Value

Sarah Inc. is considering investing in a project that would require an initial investment of $460,000. The life of the project would be 5 years. The annual net cash inflows from the project would be $120,000. The salvage value of the assets at the end of the project would be $69,000. The company uses a discount rate of 15%.

Required

1. Compute the net present value of the project. Show your work.

2. How much additional cash inflow would need to be generated per year to make this an attractive investment. (Yes, that's a clue that the NPV in part (a) is negative.)

Problem 3--Payback Period and Simple Rate of Return

Amanda Company is considering purchasing a machine that would cost $478,800 and have a useful life of 5 years. The machine would reduce cash operating costs by $114,000 per year. The machine would have no salvage value.

Required

1. Compute the payback period for the machine. Show your work.

2. Compute the simple rate of return for the machine. Show your work. HINT: You must subtract out depreciation from the cash flow to get the net income. Assume straight-line depreciation.