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Bowtie Inc. is considering a project that would have an eleven-year life and would require purchasing new equipment for KD 1,767,800. The company will sell
Bowtie Inc. is considering a project that would have an eleven-year life and would require purchasing new equipment for KD 1,767,800. The company will sell its old equipment for KD 250,000. At the end of eleven years, the project would terminate and the new equipment would have no salvage value. The company's required rate of return is 13%. The project would provide net operating income each year as follows: Annual cash flows: Annual Sales Revenue KD 690,000 Annual Cost Savings KD 230,000 Annual Cash Operating costs KD 630,000 Annual Depreciation Expense KD 45,000 Required: Compute the following: Initial Investment of the project = KD Net cash inflow = KD The project's internal rate of return. Internal Rate Return = % The project's payback period. Payback period = years The project's simple rate of return. Simple Rate of Return = % Based on the information above, would the company accept the project? 4
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