Question: 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 $262,000. In addition, Austin estimates that the new machine will increase the company's annual net cash inflows by $40,300. The machine will have a 12-year useful life and no salvage value.
Q1. Calculate the payback period.
Q2. Calculate the machine's internal rate of return.
Q3. Calculate the machine's net present value using a discount rate of 10%.
Q4. Assuming Corn Doggy, Inc.'s cost of capital is 10%, is the investment acceptable? Why or why not?