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Corn Doggy, Inc. produces and sells corn dogs. The corn dogs are dipped by hand. Austin Beagle, production manager, is considering purchasing a machine that will make the corn dogs. Austin has shopped for machines and found that the machine he wants will cost $215,000. In addition, Austin estimates that the new machine will increase the company's annual net cash inflows by $33,000. The machine will have a 12-year useful life and no salvage value.

Instructions

(a) find out the cash payback period.

(b) find out the machine's internal rate of return.

(c) find out the machine's net present value using a discount rate of 10%.

(d) Assuming Corn Doggy, Inc.'s cost of capital is 10%, is the investment acceptable? Why or why not?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M940825

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