Question
Billy Garrett,a manager of the Plate Division for the Granite CityManufacturing company, has the opportunity to expand the division by investing in additional machinery costing
Billy Garrett,a manager of the Plate Division for the Granite CityManufacturing company, has the opportunity to expand the division by investing in additional machinery costing $495,000.He would depreciate the equipment using the straight-line method and expects it to have no residual value. It has a useful life of 9years. The firm mandates a required after-tax rate of return of 14%on investments. Billyestimates annual net cash inflows for this investment of $130,000 before taxes and an investment in working capital of $5,000.The tax rate is 30%. Furture and present value tables needed for this problem.
1. | Calculate the net present value of this investment. |
2. | Calculate the accrual accounting rate of return on initial investment for this project. |
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