Valprado Industries Is Thinking of Purchasing a Machine That Will

question 23

Essay

Valprado Industries is thinking of purchasing a machine that will produce plastic kitchenware. The machine would be used for five years, would cost $35,000, would have a $5,000 residual value, and would increase annual net cash inflows by $8,800. Valprado uses the straight-line method of depreciation. Using the above facts and the present value factors below, calculate (a) the payback period (if necessary, round off and carry to one decimal place), (b) the accounting rate of return (if necessary, round off and carry to one decimal place), and (c) the machine's net present value (use parentheses to indicate a negative net present value) based on a 12 percent minimum desired rate of return (if necessary, round to the nearest dollar).
$\begin{array}{|l|l|l|}\hline \text { End of Period } & \begin{array}{l}\text { Present Value of \$1 at 12 } \\\text { Percent }\end{array} & \begin{array}{l}\text { Present Value of an Ayunuity of \$1 } \\\text { at 12Percent }\end{array} \\\hline 1 & 1.893 & .893 \\\hline 2 & .797 & 1.690 \\\hline 3 & .712 & 2.402 \\\hline 4 & .636 & 3.038 \\\hline 5 & .567 & 3.605 \\\hline\end{array}$

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