Problem:
Jordan and Taylor want to purchase a new 60 quart floor mixer for $12,000. This machine would have a 5 year life with a salvage value of $2,000. The new machine would decrease operating costs by $1,000 each year of its economic life. The straight-line depreciation method would be used for the new machine. The cost of capital is 6%.
Before they spend the money, you calculate the following capital investment figures for them.
Requirement:
Question 1: What is the payback period?
Question 2: What is the annual rate of return?
Question 3: What is the internal rate of return?
Question 4: What is the net present value?
Question 5: What is the profitability index?
Note: Could someone please give me a step by step solution?