Question

Aurora Playground Equipment Inc is considering the purchase of a new machine. The firm requires 14.00% return on the investment and payback within 3 years. The machine is expected to provide cash flows as follows:

$11000 | $5,500 | $6,000 | $1,000 | $1,000 |

Year 0 | 1 | 2 | 3 | 4 |

Determine the Pay pack Period for the Machine and whether it should be acceptable for investment.

Payback Period?______

Determine the Internal Rate of Return (IRR) of the Machine_______?

Answer #1

Solution :-

Payback Period = 1.92 Years

Yes it is acceptable as it is less than 3 Years

IRR of the Machine = 12.24%

If there is any doubt please ask in comments

Thank you please rate

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of its economic life. The straight-line depreciation method would
be used...

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