Discussion Post: Principles of Managerial Accounting
• Mayberry Textiles Inc. is considering the purchase of a new machine which has an initial cost of $400,000. Annual operating cash inflows are expected to be $100,000 each year for eight years. No salvage value is expected at the end of the asset's life. Mayberry's cost of capital is 14 percent.
• Compute the net present value of the machine. (Ignore income taxes)
• Bayleaf Inc is considering the purchase of a machine that costs $250,000. The machine is expected to generate revenues of $85,000 per year for five years. The machine would be depreciated using the straight-line method over a five-year life and have no salvage value. The company considers the impact of income taxes in all of its capital investment decisions. The company has a 40 percent income tax rate and desires an after-tax rate of return of 12 percent on its investment
Compute the net present value of the machine.
• Discuss and describe the process in which the internal rate of return is used to accept or reject projects.
• Discuss the profitability index and describe how it is used in capital investment decisions.
The response must include a reference list. Using Times New Roman 12 pnt font, double-space, one-inch margins, and APA style of writing and citations.