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Wilson Company is considering an investment in a machine costing $300,000. The machine has an estimated

Wilson Company is considering an investment in a machine costing $300,000. The machine has an estimated useful life of seven years at the end of which it will have a salvage value of $15,000. Anticipated yearly revenues associated with the machine amount to $250,000. Yearly costs amount to $150,000. Extra maintenance costs of $60,000 will be incurred at the end of the second and fourth years.
1 The payback period for this investment would be (rounded to the nearest tenth of a year)
2 The net present value of this investment using a discount rate of 10% is:

SOLUTION PREVIEW
1 The payback period for this investment would be (rounded to the nearest tenth of a year)
year
Cash flows
Cash inflows
Operating profit
Cumulative cash flows
0
-300,000
 
-300,000
 
1
-150,000
250,000
100,000
100,000
2
-210,000
250,000
40,000
140,000
3
-150,000
250,000
100,000
240,000

 
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