Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Capital Budgeting Project: Basic Capital Budgeting Techniques; Uneven Net Cash Inflows with Taxes; Spreadsheet Application Sherry Li Inc. purchased a $650,000 machine to manufacture computer

image text in transcribed

Capital Budgeting Project: Basic Capital Budgeting Techniques; Uneven Net Cash Inflows with Taxes; Spreadsheet Application Sherry Li Inc. purchased a $650,000 machine to manufacture computer chips. Li expects to sell all it can manufacture in the next 10 years. Li has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during the period of this investment. The machine is expected to have a 10-year useful life with no salvage value. Li uses straight-line depreciation and a 10% discount rate in evaluating capital investments. Assume, for simplicity, that MACRS depreciation rules do not apply. The projected pretax operating cash inflows are as follows: Year 1 2 Pretax Cash Inflow $ 65,000 80,000 120,000 200,000 240,000 Year 6 7 8 9 10 Pretax Cash Inflow $300,000 270,000 240,000 120,000 80,000 3 4 5 Required Using Excel, compute the following for the proposed investment: 1. Determine the relevant (after-tax) cash inflow each year of project operation (i.e., at the end of each of years 1 through 10). 2. The payback period (in years), under the assumption that the cash inflows occur evenly throughout the year. Round your answer to 1 decimal place. 3. The accounting (book) rate of return based on a) initial investment, and (b) average investment. Round both answers to 1 decimal place (e.g., 13.417% = 13.4%). 4. The net present value (NPV), rounded to the nearest whole dollar

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Contemporary Auditing

Authors: Knapp, Rittenberg

1st Edition

1133731244, 978-1133731245

More Books

Students also viewed these Accounting questions