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    CAPITAL INVESTING

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    Yoshika Landscaping is contemplating purchasing a new ditch-digging machine that promises savings of $5,600 per year for 10 years. The machine costs $21,970 and no salvage value is expected. The company's cost of capital is 12%. You have been asked to advise Yoshika relative to this capital investment decision. As part of your analysis, compute:

    1. The payback period.
    2. The unadjusted rate of return.
    3. The net present value.
    4. The internal rate of return.

    What factors besides your quantitative analysis should be considered in making this decision?

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    https://brainmass.com/business/capital-budgeting/capital-investing-92427

    Solution Preview

    1. The payback period.

    Payback = Year before full recovery + Unrecovered ost at start of year
    Cash flow during year

    = 3.92

    2. The unadjusted rate of return.

    = Average cash flows - depreciation
    incremental investment

    = 5,600/21,970

    = 25.49%

    3. The net present value.

    To ...

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