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Apple Inc. is considering a $1,000,000 capital investment. The calculations for accounting rate of return, payback, and discounted cash flows are as follows: Year 0

Apple Inc. is considering a $1,000,000 capital investment. The calculations for accounting rate of return, payback, and discounted cash flows are as follows:

Year

0

1

2

3

4

Initial Investment

$1,000,000





Depreciation @ 25%


$250,000

$250,000

$250,000

$250,000

Book Value at Year-End

$1,000,000

$750,000

$500,000

$250,000

$0

Cash Flows


$300,000

$400,000

$200,000

$100,000

Profit


$50,000

$150,000

$50,000

$0

ARR (%)


5%

30%

20%

10%

Payback (years)



3.5



NPV @ 10%





$95,000

Requirements:

  1. Evaluate the investment using ARR, payback period, and NPV.
  2. Suggest the implications for the company.
  3. Determine if the investment is worthwhile.

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