E24-6 BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of instal- lation 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 operat- ing 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. Instructions (a) Determine the cash payback period. (b) Determine the approximate internal rate of return. (c) Assuming the company has a required rate of return of 10%, state your conclusion on whether the new machine should be purchased.

E24-6 BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of instal- lation 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 operat- ing 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. Instructions (a) Determine the cash payback period. (b) Determine the approximate internal rate of return. (c) Assuming the company has a required rate of return of 10%, state your conclusion on whether the new machine should be purchased.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 11PROB

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