Traditionally, Granite Company has accepted a proposal only if the payback period is less than 50 percent of the asset's useful life. Peggy Casteel is the new accounting manager. She suggested to management that capital budgeting decisions should not be made based solely on the payback period. Granite Company is currently considering purchasing a new machine for the factory that would cost $112,000 and would be sold after 8 years for $50,000. The new machine will generate annual cash flows of $30,000 in its first year of use, $24,000 in its second year of use, $20,000 in the third year, and $14,800 each year thereafter. The company's cost of capital is 12 percent. Required: 1-a. Complete the table given below. 1-b. Calculate the payback period. 1-c. Would Granite Company accept this project based solely on the payback period? 2-a. Complete the table given below and calculate NPV. 2-b. Would Granite Company accept this project if the NPV method is used to evaluate the machine? Req 1A Reg 1B Req 1C Req 2A Req 2B Complete the table given below. Year 1 2 3 Initial Annual Cash Unpaid Investment Flow Investment $ 112,000 $ 30,000 $ 82,000 82,000 24,000 58,000 58,000 20,000 38,000 38,000 14,800 23,200 23,200 14,800 8,400 8,400 14,800 (6,400) (6,400) 4 6 7 8 Req 1A Reg 1B Req 1C Req 2A Reg 2B Calculate the payback period. (Round your answer to 2 decimal places.) Payback Period Years Req 1A Req 1B Req 1c Req 2A Req 2B Would Granite Company accept this project based solely on the payback period? Would Granite Company accept this project based solely on the payback period? Req 1A Req 1B Req 1c Req 2A Reg 2B Complete the table given below and calculate NPV. (Future Value of $1 $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the indicated by a minus sign. Round final answers to the nearest whole dolla Year Cash Outflow PV of $1 (12%) Present Value 0 1 2 3 4 5 6 7 8 Residual NPV Req 1A Req 1B Req 10 Req 2A Reg 2B Would Granite Company accept this project if the NPV method is used to evaluate the machine? Would Granite Company accept this project if the NPV method is used to evaluate the machine
