Sandhill Inc. wants to purchase a new machine for $37,840, excluding $1,300 of installation costs. The old machine was purchased 5 years ago and had an expected economic life of 10 years with no salvage value. The old machine has a book value of $2,100, and Sandhill Inc. expects to sell it for that amount. The new machine will decrease operating costs by $8,000 each year of its economic life. The straight-line depreciation method will be used for the new machine for a 6-year period with no salvage value. Click here to view the factor table. (a) Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.) Cash payback period enter the cash payback period in years rounded to 2 decimal places years (b) Determine the approximate internal rate of return. (Round answer to 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Internal rate of return enter the internal rate of return in percentages rounded to 0 decimal places % (c) Assuming the company has a required rate of return of 6%, determine whether the new machine should be purchased. The investment select an option shouldshould not be accepted.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 15PB: Urquhart Global purchases a building to house its administrative offices for $500,000. The best...

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Sandhill Inc. wants to purchase a new machine for $37,840, excluding $1,300 of installation costs. The old machine was purchased 5 years ago and had an expected economic life of 10 years with no salvage value. The old machine has a book value of $2,100, and Sandhill Inc. expects to sell it for that amount. The new machine will decrease operating costs by $8,000 each year of its economic life. The straight-line depreciation method will be used for the new machine for a 6-year period with no salvage value.

Click here to view the factor table.

(a)

Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.)

Cash payback period

enter the cash payback period in years rounded to 2 decimal places

years

(b)

Determine the approximate internal rate of return. (Round answer to 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Internal rate of return

enter the internal rate of return in percentages rounded to 0 decimal places %

(c)

Assuming the company has a required rate of return of 6%, determine whether the new machine should be purchased.

The investment select an option shouldshould not be accepted.

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