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%

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