Question
Valprado Industries is considering purchasing a machine that will produce plastic kitchenware. The machine would be used for five years, would cost $35,000, and would
Valprado Industries is considering purchasing a machine that will produce plastic kitchenware. The machine would be used for five years, would cost $35,000, and would have a $5,000 residual value. It is expected to increase annual net cash inflows by $8,800. Valprado uses the straight-line method of depreciation. Using the above facts and the present value factors below, determine the following.
a. Payback period (Round your answer to the two places after the decimal)
b. Accounting rate of return (Round your answer to one decimal place)
c. Net Present value of the investment based on 12 percent minimum desired rate of return (use parentheses to indicate a negative net present value. Round you answer to the nearest dollar)
End of Period | Present Value of $1 at 12 percent | Present Value of an Annuity of $1 at 12 Percent |
1 | 0.893 | 0.893 |
2 | 0.797 | 1.69 |
3 | 0.712 | 2.402 |
4 | 0.636 | 3.037 |
5 | 0.567 | 3.605 |
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