Amandas Bakery plans to purchase a new oven for its store. The oven has an estimated useful

Amanda’s Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Amanda’s Bakery has an 8% after- tax required rate of return and a 34% income tax rate. Assume depreciation is calculated on a straight- line basis for tax purposes using the initial oven investment and estimated terminal disposal value of the oven. Assume all cash flows occur at year- end except for initial investment amounts.

Required
1. Calculate
(a) Net present value,
(b) Payback period, and
(c) Internal rate of return.
2. Calculate the project’s accrual accounting rate of return based on net initialinvestment.

Transcribed Image Text:

Home Insert Page Layout Formulas Data Review View Relevant Cash Flows at End of Each Year 3 Initial machine investment $70,000) Annual cash flow from operations 4 (exdudina the depreciation effect) 5 Cash tow rom terminal disposal ot machine $24,000 $24,000 $24,000 $24,000 7,000