Sam's Structures Desires to Buy a New Crane and Accessories

question 74

Essay

Sam's Structures desires to buy a new crane and accessories to help move and install modular buildings. The machine sells for $75,000 and requires working capital of $10,000. Its estimated useful life is six years and it will have a salvage value of $17,560. Recovery of working capital will be $10,000 at the end of its useful life. Annual cash savings from the purchase of the machine will be $20,000.
Required:
a.Compute the net present value at a 12% required rate of return.
b.Compute the internal rate of return.
c.Determine the payback period of the investment.

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Definitions:

Investors

Parties or bodies that place capital, looking forward to monetary returns.

Currently Selling

Refers to goods or products that are actively being marketed and sold by a company.

Foreseeable Future

A term used to describe a period of time in which events are predicted or expected to occur.

Market Return

The total return on an investment, reflecting both capital gains and dividends, over a specific period.