# How to calculate the payback period

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Question description

Corn Doggy Inc. produces and sells corn dogs. The corn dogs are dipped by hand. Austin Beagle, production manager, is considering purchasing a machine that will make the corn dogs. Austin has shopped for machines and found that the machine he wants will cost \$262,000. In addition, Austin estimates that the new machine will increase the company’s annual net cash inflows by \$40,300. The machine will have a 12-year useful life and no salvage value.

Part (a): Calculate the payback period.
Part (b): Calculate the machine’s internal rate of return.
Part (c): Calculate the machine’s net present value using a discount rate of 10%.
Part (d): Assuming Corn Doggy Inc.’s cost of capital is 10%, is the investment acceptable? Why or why not?

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