REQUIRED Analyze the data about the machine. Use the following evaluation approaches in your analysis: The net present value method (Round to the nearest dollar.) The accounting rate-of-return method. (Round percentage to one decimal place.) The payback period method (Round to one decimal place.) [Hint: Use Tables 1 and 2 in Appendix C.] ACCOUNTING CONNECTION> Summarize the information generated in requirement 1, and make a recommendation.
Edge Company’s production vice president believes keeping up-to-date with technological changes is what makes the company successful and feels that a machine introduced recently would fill an important need. The machine has an estimated useful life of four years, a purchase price of $250,000, and a residual value of $25,000. The company controller has estimated average annual net income of $11,250 and the following cash flows for the new machine:
Cash Flow Estimates
|
Year |
|
|
Net Cash Inflows |
|
1 |
$325,000 |
$250,000 |
$75,000 |
|
2 |
320,000 |
250,000 |
70,000 |
|
3 |
315,000 |
250,000 |
65,000 |
|
4 |
310,000 |
250,000 |
60,000 |
The company uses a 12 percent minimum
REQUIRED
- Analyze the data about the machine. Use the following evaluation approaches in your analysis:
- The
net present value method (Round to the nearest dollar.) - The accounting rate-of-return method. (Round percentage to one decimal place.)
- The payback period method (Round to one decimal place.) [Hint: Use Tables 1 and 2 in Appendix C.]
- The
- ACCOUNTING CONNECTION> Summarize the information generated in requirement 1, and make a recommendation.
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