The plant manager at a company would like to perform an analysis for a new $125,000...

The plant manager at a company would like to perform an analysis for a new $125,000 machine. If she estimates benefits of $20,000 in the first year, and benefits are increasing by 10% per year

a. What is the payback period for the machine? (Hint: The Payback Period is the length of time required to recover the initial cash outflows through the successive cash inflows, thus find the time when Cumulative PW (at 0%) becomes positive)

b. Suppose that the machine life is 5 years with no salvage value at the end of its useful life. If the MARR of the company is 8% per year, is this investment acceptable? Why?

Solutions

Expert Solution

Payback period = 5 + |-2898| / 32210 = 5 + (2898 / 32210) = 5.1 years

PW = $-28,916.41

Since PW is negative, this investment is not acceptable.

Rahul Sunny answered 1 year ago

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