Iverson Company Is Considering the Purchase of a New Machine

question 7

Essay

Iverson Company is considering the purchase of a new machine. It will cost $270,000, last for 8 years, and have a zero terminal salvage value at the end of that time. If purchased, the machine is expected to increase revenues by $250,000 per year, but additional cash outlays to operate the machine will equal $200,000 per year.
Use straight- line depreciation and ignore income taxes. Compute:
a. Net present value if the minimum desired rate of return is 10%
b. Payback period
c. Accounting rate of return using initial investment

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