Calculate NPV, present value ratio, and payback
Response to the following problem:
Duncan Company is considering the investment of $140,000 in a new machine. It is estimated that the new machine will generate additional cash flow of $21,000 per year for each year of its 12-year life and will have a salvage value of $15,000 at the end of its life. Duncan's financial managers estimate that the firm's cost of capital is 12%.
Required:
a. Calculate the net present value of the investment.
b. Calculate the present value ratio of the investment.
c. What is the internal rate of return of this investment, relative to the cost of capital?
d. Calculate the payback period of the investment.