Question

Johnson Ltd a manufacturer of office equipment is considering purchasing a new machine for $2,000,000. The company is expecting an annual cash inflow of $1,220,000 from the sale of the products and an annual cash outflow of $350,000 for each of the six years of the machine's useful life. The annual cash outflow do not include annual depreciation charges for the machine. The machine is depreciated using the straight line method. The machine is expected to last for six years, with a residual value estimated to be $500,000 at the end of the sixth year. The cost of capital for Johnson Ltd is 10%. Calculate the necessary investment appraisal techniques

Answer 1

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