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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:
- Evaluate the investment using ARR, payback period, and NPV.
- Suggest the implications for the company.
- Determine if the investment is worthwhile.
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