BSU Inc. wants to purchase a new machine for $34,608, excluding $1,300 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 $1,900, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by $7,800 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. Click here to view the factor table. (a) Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.) Cash payback period (b) 4.36 Internal rate of return years Determine the approximate internal rate of return. (Round answer to O decimal places, eg 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) 19 %
BSU Inc. wants to purchase a new machine for $34,608, excluding $1,300 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 $1,900, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by $7,800 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. Click here to view the factor table. (a) Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.) Cash payback period (b) 4.36 Internal rate of return years Determine the approximate internal rate of return. (Round answer to O decimal places, eg 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) 19 %
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
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