Question

Acme Tools is considering the purchase of a new machine. The total cost of the new machine is $48,000 and it has a 9-year service life with no salvage value at the end of nine years. The annual cash inflow will be 16% of the cost of the machine. If the appropriate cost of capital is 6.0 percent, what is the discounted payback period?
A. less than 8.0 years
B. more than 8.0 years but less than 8.3 years
C. more than 8.3 years but less than 8.6 years
D. more than 8.6 years but less than 8.9 years
E. more than 8.9 years

A firm is evaluating an investment proposal which has an initial investment of $23,500, a cash inflow in year 1 that is presently valued at $9,000, a cash inflow in year 2 that is presently valued at $7,500. a cash inflow in year 3 that is presently valued at $6,000 and a cash inflow in year 4 that is presently valued at $5,500. The appropriate cost of capital is 5.0 percent. The net present value of the investment is:
A. less than $100
B. more than $100 but less than $1,600
C. more than $1,600 but less than $3,100
D. more than $3,100 but less than $4,600
E. more than $4,600

Answer 1

1]	Year	Cash flows	PVIF at 6%	PV at 6%	Cumulative PV
	0	$      -48,000	1	-48000	-48000
	1	$          7,680	0.94340	7245	-40755
	2	$          7,680	0.89000	6835	-33920
	3	$          7,680	0.83962	6448	-27471
	4	$          7,680	0.79209	6083	-21388
	5	$          7,680	0.74726	5739	-15649
	6	$          7,680	0.70496	5414	-10235
	7	$          7,680	0.66506	5108	-5127
	8	$          7,680	0.62741	4819	-309
	9	$          7,680	0.59190	4546	4237
	Discounted payback = 9+309/4546 =			9.07	Years
	Answer: Option [E] more than 8.9 years
2]	NPV = -23500+9000/1.05+7500/1.05^2+6000/1.05^3+5500/1.05^ 4=					$          1,582
	Answer: Option [B] more than $100 but less than $1600.