Elston Company estimates the following cash flows and depreciation on a project that will cost $200,000 and will last 10 years with no salvage value Revenues Sales $70,000 Operating expenses Rent expense $26,000 Depreciation expense 20,000 Miscellaneous expenses 8,000 54,000 Net Income $16,000 Inst...

a Computation of the Expected Annual Rate of Return b Computation o ...

Elston Company estimates the following cash flows and depreciation on a project that will cost $200,000 and

Question:

Elston Company estimates the following cash flows and depreciation on a project that will cost $200,000 and will last 10 years with no salvage value:

Revenues
Sales		$70,000
Operating expenses
Rent expense	$26,000
Depreciation expense	20,000
Miscellaneous expenses	8,000	54,000
Net Income		$16,000

Instructions

(a) Calculate the expected annual rate of return on this project showing calculations to support your answer.

(b) Calculate the cash payback on this project showing calculations to support your answer.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...