Springfield Manufacturing Co. is considering the investment of $60,000 in a new machine. The machine will...

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Accounting

Springfield Manufacturing Co. is considering the investment of$60,000 in a new machine. The machine will generate cash flow of$7,500 per year for each year of its 15 year life and will have asalvage value of $4,000 at the end of its life. Springfield's costof capital is 10%.

(a.) Calculate the net present value of the proposed investment.Ignore income taxes, and round all answers to the nearest $1.
(b.) Calculate the present value ratio of the investment.
(c.) What will the internal rate of return on this investment berelative to the cost of capital? Explain your answer.
(d.) Calculate the payback period of the investment.

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3.8 Ratings (354 Votes)

a Net Present Value 1997 Working a Present value of annuity of 1 11ini Where 1101015010 i 10 76061 n 15 b Present value of 1 1in Where 101015 i 10 02394 n 15 c Present Value of annual cash flows Annual Cash flows x Present Value of annuity of 1 7500 x 76061 57046 d Present Value of salvage value Salvage Value x Present value of 1 4000 x 02394 958 e See Answer

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