Problem
A machine costs $4,000 (paid out at the beginning of year 1), and generates year-end net cash inflows of $2,000 per year for five years (this is the useful life of the machine). The machine has zero salvage value. The company uses straight-line depreciation and a 10% cost of capital.
Task
i. What is the payback period for this project?
ii. What is the net present value of this project?
iii. What is the accounting rate of return for this project?