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

question 152

Essay

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:
$$\begin{array} { | c | c | c | c | c | } \hline & 12 \% & 13 \% & 14 \% & 15 \% \\\hline 1 & 0.893 & 0.885 & 0.877 & 0.87 \\\hline 2 & 1.69 & 1.668 & 1.647 & 1.626 \\\hline 3 & 2.402 & 2.361 & 2.322 & 2.283 \\\hline 4 & 3.037 & 2.974 & 2.914 & 2.855 \\\hline 5 & 3.605 & 3.517 & 3.433 & 3.352 \\\hline 6 & 4.111 & 3.998 & 3.889 & 3.784 \\\hline 7 & 4.564 & 4.423 & 4.288 & 4.160 \\\hline\end{array}$$ 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.

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