Answer Happy

Compuservice, Inc., a computer service provider, is considering the purchase of a new machine, the M-80, that is the fastest machine of its type available. Cal Crandall, president of Compuservice, believes that a number of new customers will be attracted if the company acquires an M-80. He estimates additional revenues will be $480,000 per year. Additional maintenance and salary costs for the M-80 would be $48,000 per year. The new machine's cost is $1,800,000 and it is expected to be useful for nine years. Annual software upgrades will be necessary at the end of the third and sixth years, and the upgrade is estimated to cost $112,000 each of those years. The new machine's estimated salvage at the end of nine years is estimated to be $300,000. The company's required rate of return on investment is 16% per year. Required: 1. Please determine the payback, net present value, and internal rate of return for this potential purchase. Clearly show computations. 2. Give the definition of net present value and internal rate of return.