Hondai ltd that operate in the automobile industry is, Ask an Expert

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Hondai (Ltd) that operate in the automobile industry is considering replacing a machine with a new one that requires a $4200000 investment. The operating cash inflows over the next 9 years will be $740000 per annum and the cash inflow for the 10th year will be $220000. Thereafter the machine will be sold for $400000. The company uses straight-line depreciation. The cost of capital for projects of similar risk is 11%. Note Average profit is $308000.

Ignore taxation.

Required:

Assume a payback period of 6 years. Determine the payback period and state if the investment is acceptable or not.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92392142

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