Blossom Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment:

Old Equipment		New Equipment
Cost		$80,400		Cost		$38,400
Accumulated depreciation		$41,700		Estimated useful life		8 years
Remaining life		8 years		Salvage value in 8 years		$5,000
Current salvage value		$10,680		Annual cash operating costs		$30,900
Salvage value in 8 years		$0
Annual cash operating costs		$36,000

Depreciation is $10,050 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over an eight-year period with salvage value of $5,000.

(a)

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Your answer is correct.

Determine the cash payback period. (Ignore income taxes.) (Round answer to 3 decimal places, e.g. 15.275.)

Cash payback period

enter the cash payback period in years rounded to 3 decimal places

years

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Attempts: 2 of 4 used

(b)

• Your Answer
• Correct Answer

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Your answer is incorrect.

Calculate the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.)

Annual rate of return

enter the annual rate of return in percentages rounded to 2 decimal places

%

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Solution

Attempts: 4 of 4 used

(c)

Calculate the net present value assuming a 12% rate of return. (Ignore income taxes.) (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) Click here to view the factor table.

Net present value

$enter the net present value in dollars rounded to 0 decimal places