Moonbeam Company is considering purchasing a new machine for $80,000.The new facility will generate annual net cash inflows of $20,000 for six years.At the end of the six years the machine will have no residual value.The company uses straight-line depreciation,and its stockholders demand an annual return of 12% on investments of this nature.
Present value of an ordinary annuity of $1:

Requirements
1.Compute the payback,the ARR,the NPV,the IRR,and the profitability index of this investment.
2.Recommend whether the company should invest in this project.

Question

Moonbeam Company is considering purchasing a new machine for $80,000.The new facility will generate annual net cash inflows of $20,000 for six years.At the end of the six years the machine will have no residual value.The company uses straight-line depreciation,and its stockholders demand an annual return of 12% on investments of this nature.
Present value of an ordinary annuity of $1:
  
Requirements
1.Compute the payback,the ARR,the NPV,the IRR,and the profitability index of this investment.
2.Recommend whether the company should invest in this project.

Quizplus · Accepted Answer

The Answer of Moonbeam Company is considering purchasing a new machine for $80,000.The new facility will generate annual net cash inflows of $20,000 for six years.At the end of the six years the machine will have no residual value.The company uses straight-line depreciation,and its stockholders demand an annual return of 12% on investments of this nature.
Present value of an ordinary annuity of $1:
  
Requirements
1.Compute the payback,the ARR,the NPV,the IRR,and the profitability index of this investment.
2.Recommend whether the company should invest in this project.

Moonbeam Company Is Considering Purchasing a New Machine for $80,000