Portsmouth Port Services creates and maintains shipping channels at various ports around the world. The company is

Question:

Portsmouth Port Services creates and maintains shipping channels at various ports around the world. The company is considering the purchase of a $72,000,000 ocean-going dredge that has a 5-year life and no . The company depreciates assets on a straight-line basis. The expected annual cash flow on a before-tax basis for this equipment is $20,000,000. Portsmouth requires that an investment be recouped in less than 5 years and have a pre-tax accounting rate of return of at least 18 percent.
a. Compute the and accounting rate of return for this equipment.
b. Is the equipment an acceptable investment for Portsmouth? Explain.

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... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...