Payback period and internal rate of return
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The management of a kitchen shop is thinking of buying a new drill press to aid in adapting parts for different machines. The press is expected to save the kitchen shop $8,000 per year in costs. However, the kitchen shop has a old punch machine that is not worth anything on the market and that it will probably last indefinitely. The new press will last 12 years and cost $41,595. (Ignore the tax effects)
a. Compute the payback period of the new machine.
b. Compute the internal rate of return
c. Interpretive question:What uncertainties are involved in this decision? Discuss how they might be dealt with.
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Excel file contains calculations of payback period and internal rate of return.
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