Bsu inc. wants to purchase a new machine for $29,300, excluding $1,500 of installation costs. the old machine was bought five years ago and had an expected economic life of 10 years without salvage value. this old machine now has a book value of $2,000, and bsu inc. expects to sell it for that amount. the new machine would decrease operating costs by $7,000 each year of its economic life. the straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value.
(a) determine the cash payback period.
(b) determine the approximate internal rate of return.
(c) assuming the company has a required rate of return of 10%, state your conclusion on whether the new machine should be purchased.