The Sloopy Jeans Is Considering the Purchase of a Machine

Essay

The Sloopy Jeans is considering the purchase of a machine that would increase the business' cash inflows by $12 000 per year for 6 years. Operation of the machine would increase the business' cash payments by $400 in each of the first 3 years, $800 the fourth year, and $1000 in the fifth and sixth years. The machine costs $50 000 and would have a residual value of $2000 at the end of the sixth year.
Required:
(1) Calculate the payback period for this machine.
(2) Calculate the net present value of the investment in the machine, assuming a minimum acceptable rate of return of 16%.