Contemplating purchasing a new ditch-digging machine


Problem:

Yoshika Landscaping is contemplating purchasing a new ditch-digging machine that promises savings of $5,600 per year for 10 years. The machine costs $21,970, and no salvage value is expected. The company's cost of capital is 12%. You have been asked to advise Yoshika relative to this capital investment decision. As part of your analysis, compute:

1. The payback period.
2. The unadjusted rate of return.
3. The net present value.
4. The internal rate of return.

What factors besides your quantitative analysis should be considered in making this decision?

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Finance Basics: Contemplating purchasing a new ditch-digging machine
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