The management of ABC company wants to reduce its labor cost by installing a new machine. Two types of machines are available in the market – machine X and machine Y. Machine X would cost $18,000 where as machine Y would cost $15,000. Both the machines can reduce annual labor cost by $3,000. Which is the best machine to purchase according to payback method?

An investment of $200,000 is expected to generate the following cash inflows in six years:

Year 1: $70,000

Year 2: $60,000

Year 3: $55,000

Year 4: $40,000

Year 5: $30,000

Year 6: $25,000

Compute payback period of the investment. Should the investment be made if management wants to recover the initial investment in 3 years or less?

An opportunity arises for a company which requires an initial investment of $800,000 now. The management’s discount rate is 12%.

The amount of cash inflows expected from the new opportunity are:

 Year-1 cash Inflow: $250,000

 Year-2 cash Inflow: $400,000

 Year-3 cash Inflow: $300,000

 Year-4 cash Inflow: $450,000

Compute the simple payback periods of the new investment opportunity. Is this investment opportunity acceptable under two methods if the maximum desired payback period of the management is 3 years?

Due to increased demand, the management of Rani Beverage Company is considering to purchase a new equipment to increase the production and revenues. The useful life of the equipment is 10 years and the company’s maximum desired payback period is 4 years. The inflow and outflow of cash associated with the new equipment is given below:

Initial cost of equipment: $37,500

Annual cash inflows:

Sales: $75,000

Annual cash Outflows:

Cost of ingredients: $45,000

Salaries expenses: $13,500

Maintenance expenses: $1,500

Non cash expenses:

Depreciation expense: $5,000

Required: Should Rani Beverage Company purchase the new equipment? Use payback method for your answer.

A project requires an initial investment of €1,200,000, and then earns net profits before depreciation as follows:

Year Profits (€)

1 300,000

2 400,000

3 600,000

4 500,000

At the end of the four years, the asset will be sold for €200,000. Company’s target ROCE is 18%.

Calculate the projects ROCE.

A Company wants to invest in new set of vehicles for the business. The vehicles cost £350,000 and would increase the company’s annual revenue by £100,000, as well as the company’s annual expenses by £10,000. The vehicles are estimated to have a useful shelf life of 20 years, with no salvage value. So, calculate ARR for this investment.

XYZ Company is considering investing in a project that requires an initial investment of $100,000 for some machinery. There will be net inflows of $20,000 for the first two years, $10,000 in years three and four, and $30,000 in year five. Finally, the machine has a salvage value of $25,000. Find the ROCE of this project