FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 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 $2,000, and BSU
Inc. expects to sell it for that amount. The new machine would decrease operating costs by $7,000 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.
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)
Determine the approximate internal rate of return. (Round answer to O decimal places, e.g. 13%. For calculation purposes, use 5 decimal
places as displayed in the factor table provided.)
Internal rate of return
(c)
years
The investment
Assuming the company has a required rate of return of 10%, determine whether the new machine should be purchased.
be accepted.
%
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