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Unformatted text preview: Question P1 Machine First Second Cost of machine-14000-21000 Annual cash flow 3000 4000 Period 7 20 A Payback period 4.33 5.25 B The second machine is not acceptable considering the payback critiria, as it has payback period higher than 5 years. C D Question P2 Initial cost 18250 Cash flow 4000 Tenure 7 Discount rate 10% NPV $1,223.68 IRR 12% We would recommend accepting the project, as it has higher IRR and positive NPV Question P3 Cost of machine $325,000 Depreciation Under MACRS Depreciation for year 1 $65,000 Depreciation for year 2 $104,000 Sale price $200,000 A Book value of machine $156,000 B Profit on sale $44,000 Tax $17,600 After tax proceeds $182,400 C Cost of new computer system $500,000 Proceeds from sale of old machine $182,400 Net investment $317,600 Question P4 Project A Low risk Project B Medium risk Project C High Project D High B Project A Project B Project C Project D The project has high risk, considering the size of the investment and venturing of the company into new business.The project has high risk, considering the size of the investment and venturing of the company into new business....
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- Spring '10