# How to calculate the payback period

*label*Business

*timer*Asked: Mar 30th, 2014

**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?