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    Business Decision:investment in new machine

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    Karl is planning to buy a new ZZZ machine for the club. Members have told him the new ZZZ machine will raise the club's annual revenues by $1000 per year.
    Karl's club is a taxable: tax rate is 36%. He plans to depreciate the new ZZZ machine on a straight line basis to a zero salvage value at the end of five years. The cost of the new equipment is $1999. A spare parts inventory investment of $200 will have to be made at the time of purchase. He doesn't think this inventory will have any salvage value at the end of five years.
    Using Excel:

    1. Prepare a table of annual cash flows for the new investment. Show your calculations in detail.
    2. Calculate the payback period.
    3. Calculate the IRR.
    4. Calculate the NPV, using discount rates of 10% and 20% per year.
    5. Comment on the given the results above.

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    Solution Summary

    Excel file contains calculations of annual cashflow, NPV, IRR and pay back period.