ABC Incorporated manufactures the best products in town. Because the business is thriving several departments need an investment of additional resources to accommodate their expanding needs. The management at ABC must decide which investment is the best option for the company. ABC uses a $12\%$ discount rate in evaluating capital investments. ABC uses straight$-$line depreciation. The average reported operating income for the company is $$1,630,500.$The option is enumerated below.

 

OPT: Invest in a new fleet of automobiles for Sales and Services Department. The automobiles consist of a mix of cars for salespeople, delivery trucks to ship completed products, and specialty cargo trucks for transporting raw materials used in production. The selected vehicles are more fuel efficient, equipped with the latest technology to help avoid accidents, and provide greater capacity for the needs of the company. The fleet of vehicles could be purchased for $$800,000$ and are expected to have a $10-$year useful life. ABC expects a net cash inflow of $$184,000$ each year for $10$ years.

 

 

REQUIRED

You may use Excel's built$-$in functions for NPV and IRR or you may make the calculations using the appropriate present value table. Compute the following for the above$-$referenced investment options:$\mathrm{}$

$1.$ Payback period$/$method $($assume cash inflows occur evenly throughout the year$)\mathrm{}$

$2.$ Unadjusted rate of return $($also called simple rate of return and accounting rate of return$)\mathrm{}$

$3.$ NPV $($assume that cash inflows occur at year$-$end$)\mathrm{}$

$4.$ Internal rate of return $($IRR$)\mathrm{}$

$5.$ Present Value Index