Question
ABC Company is considering the purchase of a new machine that would cost $500,000. The machine would have a useful life of 10 years. ABC
ABC Company is considering the purchase of a new machine that would cost $500,000. The machine would have a useful life of 10 years. ABC Company plans on using straight-line depreciation with an estimated salvage value of $0. ABC Company has a hurdle rate of 10% and is subject to an income tax rate of 40%. The annual cash income is estimated to be $125,000.
1. The Accounting Rate of Return (AROR) is: A. 7% B. 8% C. 9% D. 10%
2. The Net Present Value (NPV) is: A. $63,775 B. $73,775 C. $83,775 D. $93,775
3. The Payback period is: A. 5.236 years B. 6.263 years C. 7.263 years D. 8.263 years
4. Using interpolation, the Internal Rate of Return (IRR) is: A. 12.9% B. 13.9% C. 14.9% D. 15.9%
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