Question
A company is looking into investing in the purchase of a new equipment for $260,000. The equipment is expected to have a 5-year life with
A company is looking into investing in the purchase of a new equipment for $260,000. The equipment is expected to have a 5-year life with no salvage value. Annual net cash flows are expected to be $32,500 and Net Income is expected to be $40,000. The companys required rate of return is 10%.
Using the information above, compute the following: 1. Cash Payback Period (7 pts) 2. Net Present Value (7 pts) 3. Annual Rate of Return (7 pts) 4. The company accepts investments with Cash Payback period equal to or less than the useful life, Positive NPV, and an Annual Rate of Return greater than 35%. Should the investment be accepted? Yes or No and why? (4 pts)
Instructions: Show all calculations for each item step-by-step, by numbering your answers to receive full credit.
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