Question

Exercise 25-06 (Video) Vaughn Inc. wants to purchase a new machine for $35,525, excluding $1,400 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,200, and Vaughn Inc. expects to sell it for that amount. The new machine would decrease operating costs by $7,500 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value. Click here to view PV table. (a) Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.) Cash payback period years (b) Determine the approximate internal rate of return. (Round answer to 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Internal rate of return (c) Assuming the company has a required rate of return of 6%, determine whether the new machine should be purchased. The investment be accepted.

          Exercise 25-06 (Video)
Vaughn Inc. wants to purchase a new machine for $35,525, excluding $1,400 of installation costs. The old machine was bought five years ago and had an expected economic life
of 10 years without salvage value. This old machine now has a book value of $2,200, and Vaughn Inc. expects to sell it for that amount. The new machine would decrease
operating costs by $7,500 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value.
Click here to view PV table.
(a)
Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.)
Cash payback period
years
(b)
Determine the approximate internal rate of return. (Round answer to 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the
factor table provided.)
Internal rate of return
(c)
Assuming the company has a required rate of return of 6%, determine whether the new machine should be purchased.
The investment
be accepted.

Exercise 25-06 (Video)
Vaughn Inc. wants to purchase a new machine for 35,525, excluding1,400 of installation costs. The old machine was bought five years ago and had an expected economic life
of 10 years without salvage value. This old machine now has a book value of 2,200, and Vaughn Inc. expects to sell it for that amount. The new machine would decrease
operating costs by7,500 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value.
Click here to view PV table.
(a)
Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.)
Cash payback period
years
(b)
Determine the approximate internal rate of return. (Round answer to 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the
factor table provided.)
Internal rate of return
(c)
Assuming the company has a required rate of return of 6%, determine whether the new machine should be purchased.
The investment
be accepted.

Added by Julie M.

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