Aikmen LabAikmen Lab plans to purchase a new centrifuge machine for its British Columbia facility. The...

Aikmen LabAikmen Lab plans to purchase a new centrifuge machine for its British Columbia facility. The machine costs $ 437000 and is expected to have a useful life of eight years, with a terminal disposal value of $42,000. Savings in cash operating costs are expected to be $85,000per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $15,000 needs to be maintained at all times, but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Aikmen LabAikmen Lab's required rate of return is 8%.

Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts.

Calculate net present value.
2.	Calculate internal rate of return.
3.	Calculate accrual accounting rate of return based on net initial investment. Assume straight-line depreciation.
4.	You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods?

Expert Solution

ekkarill92 answered 1 year ago

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