Question

Jordan and Taylor want to purchase a new 60-quart floor mixer for $12,000. This machine would have a 5-year life with a salvage value of $2,000. The new machine would decrease operating costs by $1,000 each year of its economic life. The straight-line depreciation method would be used for the new machine. The cost of capital is 6%.

Before they spend the money, they have asked you to calculate outcomes with capital investment models.

1. What is the payback period? (Round to two decimal places and make sure your answer is in the correct format.) (3 points)

2. What is the annual rate of return? (Round to two decimal places and make sure your answer is in the correct format.) (3 points)

3. What is the internal rate of return? (Round to nearest whole percent and make sure your answer is in the correct format.) (3 points)

4. What is the net present value? (Round to whole dollars and make sure your answer is in the correct format.) (3 points)

5. What is the profitability index? (Round to two decimal places.) (3 points)

Answer 1

Solutions Given data, cost of machine & $ 12000 life time of machine as years Salvage value = $2000 operating cost = $1000 cost of capital is 6%. Depreckation - Coff -sahrage 12000-2000 - $2.000 payback period a cast operating cost 1000 & 12 weitere Operating cost Annual mute of redwone 1000 = 8.337. 12000 cost ini , DRR = 12000 & {PUAB . syears) - novo & apu = operating cott cost of capital of 1000 0-06 ő = 16667 166 NPV = (6667 - 12000 = 4667 probability index (P..) = Prof Cashflf - 16667 prof cash olf = 1.39. I can