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Calculate the net present value and payback period

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Question - Capital budgeting methods, no income taxes. Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Yummy has accumulated regarding the new machine is as follows:

Cost of the machine $80,000

Increased annual cash flows $15,000

Life of the machine 10 years

Required rate of return 6%

Yummy estimates they will be able to produce more candy using the second machine and thus increase their annual cash flows. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts.

Required:

1. Calculate the following for the new machine:

a. Net present value

b. Payback period

c. Discounted payback period

2. What other factors should Yummy Candy consider in deciding whether to purchase the new machine?

Reference no: EM132189485

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