Payback, Net Present Value, and Internal Rate of Return Methods
Response to the following problem:
Nucore Company is thinking of purchasing a new candy-wrapping machine at a cost of $370,000. The machine should save the company approximately $70,000 in operating costs per year over its estimated useful life of 10 years. The salvage value at the end of 10 years is expected to be $15,000. (Ignore income tax effects.)
Required:
1. What is the machine's payback period?
2. Compute the net present value of the machine if the cost of capital is 12%.
3. What is the expected internal rate of return for this machine?