Exercise 12-6 BSU Inc. wants to purchase a new machine for $25,900, excluding $1

Question

Exercise 12-6 BSU Inc. wants to purchase a new machine for $25,900, excluding $1,200 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $1,700, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by $6,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value. lick her iew Determine the cash payback period. (Round cash payback period to 1 decimal place, e.g. 10.5.) Cash payback period years Determine the approximate internal rate of return. (Round answer to o decimai places, e.g. 10. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Internal rate of return Assuming the company has a required rate of return of 10%, determine whether the new machine should be purchased The investment be accepted

Explanation / Answer

Net investment = 25900+1200-1700= $25400 a Cash payback period = 25400/6000= 4.2 years b PV factor for internal rate of return = 25400/6000= 4.23333 Internal rate of return = 11% c The investment should be accepted

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.