SQU LLC is considering purchasing the following new machines which relevant data is presented below. Albana Albanu 580,000 840,000 Life Span 5,000 Albana Albanu Cost 10 8. Salvage value 2,000 Yearly Cost Savings 185,000 195,000 Tax Rate 25% Discount Rate 10% (a) Evaluate the above capital expenditure proposal using the three different methods of Net Present Value, the Internal Rate of Return and the Payback Period. (Note: You are required to clearly indicate the appropriate decision and assume straight- line depreciation method) (b) Numerical analysis based on the above calculation methods forms only a part of the capital budgeting strategy. Do you agree? Explain. (c) Given the results in (a) above, do you agree that the IRR method is superior to the NPV method? Explain.

SQU LLC is considering purchasing the following new machines which relevant data is presented below. Albana Albanu 580,000 840,000 Life Span 5,000 Albana Albanu Cost 10 8. Salvage value 2,000 Yearly Cost Savings 185,000 195,000 Tax Rate 25% Discount Rate 10% (a) Evaluate the above capital expenditure proposal using the three different methods of Net Present Value, the Internal Rate of Return and the Payback Period. (Note: You are required to clearly indicate the appropriate decision and assume straight- line depreciation method) (b) Numerical analysis based on the above calculation methods forms only a part of the capital budgeting strategy. Do you agree? Explain. (c) Given the results in (a) above, do you agree that the IRR method is superior to the NPV method? Explain.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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