Finsdale Farms, Inc. produces and sells corn dogs

Finsdale Farms, 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)   Calculate the cash payback period.

(b)   Calculate the machine’s internal rate of return.

(c)   Calculate the machine’s net present value using a discount rate of 10%.

(d)   Assuming Finsdale Farms, Inc.’s cost of capital is 10%, is the investment acceptable? Why or why not?

Here’s the SOLUTION

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