Question
1. Midwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $102,000 with a $9,000
1. Midwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $102,000 with a $9,000 residual value and a five-year life. The equipment will replace one employee who has an average wage of $31,790 per year. In addition, the equipment will have operating and energy costs of $9,860 per year.
Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent. ____%
2.
Prime Financial Inc. is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $100,000 and each with an eight-year life and expected total net cash flows of $200,000. Location 1 is expected to provide equal annual net cash flows of $25,000, and Location 2 is expected to have the following unequal annual net cash flows:
Year 1 | $45,000 | Year 5 | $24,000 | |
Year 2 | 34,000 | Year 6 | 18,000 | |
Year 3 | 21,000 | Year 7 | 14,000 | |
Year 4 | 32,000 | Year 8 | 12,000 |
Determine the cash payback period for both location proposals.
Location 1 | ___ years |
Location 2 | ___ years |
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