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Hefty Investment Hefty Investment Co

Business

Hefty Investment

Hefty Investment Co. is considering an investment in a labor-saving machine. Information on this machine follows:

 

Cost

$30,000

Salvage value in five years

$0

Estimated life

5 years

Annual depreciation

$6,000

Annual reduction in existing costs

$8,000

  1.   Refer to Hefty Investment. (Present value tables needed to answer this question.) What is the internal rate of return on this project (round to the nearest 1/2%)?

 2. Refer to Hefty Investment. (Present value tables needed to answer this question.) Assume for this question only that Hefty Co. uses a discount rate of 16 percent to evaluate projects of this type. What is the project's net present value?

  3.   Refer to Hefty Investment. What is the payback period on this investment?

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