Nico’s Novelties is considering purchasing pinball machines to place in amusement parks. The machines would incur a total cost of 400,000 dollars, have a 11 year useful life, and would have a salvage value of 40,000 dollars. Based off of future forecasts, the following revenues and costs of the project are as follows:
Commission to parks
Insurance
Maintenance
Net Income:
The companies discount rate is 15%
Nico’s would be able to sell the old machines at a value of 10,000 dollars
Compute the NPV of the project.
Compute the project’s payback period and simple rate of return.
What characteristics about the IRR can you make based on the present value? Now calculate this.