PAYBACK, ACCOUNTING RATE OF RETURN, NET PRESENT VALUE, INTERNAL RATE OF RETURN Whipple Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is

$480,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow:

Year Cash Revenues Cash Expenses 1 $780,000 $600,000 2 780,000 600,000 3 780,000 600,000 4 780,000 600,000 5 780,000 600,000 Required:
. Compute the payback period for the NC equipment.
. Compute the NC equipment’s ARR.
. Compute the investment’s NPV, assuming a required rate of return of 10 percent.
. Compute the investment’s IRR.
Exercise