Baldock Inc. is considering the acquisition of a new machine that costs $420,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are:
| |
Incremental Net
|
Incremental Net
|
| |
Operating Income
|
Cash Flows
|
|
Year 1
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$61,000
|
$145,000
|
|
Year 2
|
$67,000
|
$151,000
|
|
Year 3
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$78,000
|
$162,000
|
|
Year 4
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$41,000
|
$125,000
|
|
Year 5
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$83,000
|
$167,000
|
1. If the discount rate is 12%, the net present value of the investment is closest to:
A) $330,000
B) $539,365
C) $119,365
D) $420,000
2. The payback period of this investment is closest to:
A) 5.0 years
B) 3.2 years
C) 1.9 years
D) 2.8 years