(Payback, ARR, and NPV) Brenda Blair is considering buying a Bobcat for her construction business; the machine costs $250,000. Purchasing the Bobcat will provide incremental cash flows of $51,000 per year for six years. The salvage value at the end of five years is expected to be nil. Brenda's cost of capital is 14%.
a. Should Brenda purchase the Bobcat?
b. Compute the payback period, accounting rate of return based on initial investment, and NPV for the investment in making your decision.