Assignment-3 (Internal rate of return
and net present value methods)Net present value method:
Sunlight company
needs a machine for its manufacturing process. The cost of the new machine is
$80,700. The expected useful life of the machine is 8 years. At the end of
8-year period, the machine would have no salvage value. After installation, the
machine would increase cash inflows by $30,000 per year. Sunlight is interested
to know the net preset value of the machine to accept or reject this
investment. The minimum required rate of return of the company is 16% on all
capital investments.Required:1.
Compute net present value of the machine.
2.
Is it acceptable to purchase the machine?Internal rate of return method:
A machine can reduce annual cost by $40,000.
The cost of the machine is 223,000 and the useful life is 15 years with zero
residual value.
Required:1.
Compute internal rate of return of the
machine.
2.
Is it an acceptable investment if cost of
capital is 16%?