Antara Ltd. is considering the purchase of a new machine for the production of latex. The machine costs $500,000. The machine will be usable for ten years, at which time it will become worthless. Antara plans to update to a new model in five years when it will be sold for $100,000. Annual revenues from the new machine are expected to be $130,000 per year for the first four years of use and $95,000 in Year 5. The company uses the straight-line depreciation method for its non-current assets. The company's cost of capital is 10%. Required: a) Calculate the Accounting Rate of Return (ARR) for the new machine. (Round your answer to two decimal places). b) Calculate the Payback Period for the new machine (Round your answer to two decimal places). c) Calculate the Net Present Value (NPV) for the new machine. Show your workings.

Antara Ltd. is considering the purchase of a new machine for the production of latex. The machine costs $500,000. The machine will be usable for ten years, at which time it will become worthless. Antara plans to update to a new model in five years when it will be sold for $100,000. Annual revenues from the new machine are expected to be $130,000 per year for the first four years of use and $95,000 in Year 5. The company uses the straight-line depreciation method for its non-current assets. The company's cost of capital is 10%. Required: a) Calculate the Accounting Rate of Return (ARR) for the new machine. (Round your answer to two decimal places). b) Calculate the Payback Period for the new machine (Round your answer to two decimal places). c) Calculate the Net Present Value (NPV) for the new machine. Show your workings.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 16P: Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of...

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