Book & Bible Bookstore desires to buy a new coding machine to help control book inventories. The machine sells for $36,586 and requires working capital of $4,000. Its estimated useful life is five years and will have a salvage value of $4,000. Recovery of working capital will be $4,000 at the end of its useful life. Annual cash savings from the purchase of the machine will be $10,000. Ignore income taxes.
Required:
a. Compute the net present value at a 14 percent required rate of return.
b. Compute the internal rate of return.
c. Determine the payback period of the investment.

Question

Quizplus · Accepted Answer

The Answer of Book & Bible Bookstore desires to buy a new coding machine to help control book inventories. The machine sells for $36,586 and requires working capital of $4,000. Its estimated useful life is five years and will have a salvage value of $4,000. Recovery of working capital will be $4,000 at the end of its useful life. Annual cash savings from the purchase of the machine will be $10,000. Ignore income taxes.
Required:
a. Compute the net present value at a 14 percent required rate of return.
b. Compute the internal rate of return.
c. Determine the payback period of the investment.

Book & Bible Bookstore Desires to Buy a New Coding