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Corn Doggy, Inc
Corn Doggy, Inc. produces and sells corn dogs. The corn dogs are dipped by hand. Austin Beagle, production manager, is considering purchasing a machine that will make the corn dogs. Austin has shopped for machines and found that the machine he wants will cost $215,000. In addition, Austin estimates that the new machine will increase the company's annual net cash inflows by $33,000. The machine will have a 12-year useful life and no salvage value.
Calculate the cash payback period. (Round answer to 1 decimal place, e.g. 15.2.)
Cash payback period years
Calculate the machine's internal rate of return.
Internal rate of return %
Calculate the machine's net present value using a discount rate of 10%. (Use the above table.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.)
Expert Solution
1) Computation of Cash Payback Period:
Cash Payback Period = Initial Investment/Annual Cash Inflows
= $215,000/$33,000
Cash Payback Period = 6.5 years
2&3) Computation of Net Present Value and Internal Rate of Return:
Internal Rate of Return = 10.93%
Net Present Value = $9,852
4) Yes, the investment is acceptable as NPV is positive and IRR is greater than cost of capital.
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