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Chee Company has gathered the following data on a proposed investment project: Investment required in equipment............. $450,000 Annual cash inflows.................................. Year 1: $70,000 Year 2:
Chee Company has gathered the following data on a proposed investment project:
Investment required in equipment............. | $450,000 | |
Annual cash inflows.................................. | ||
Year 1: $70,000 Year 2: 60,000 Year 3: 50,000 Year 4: 40,000 Year 5: 55,000 Year 6: 60,000 Year 7: 80,000 Year 8: 75,000 Salvage value............................................. | $80,000 | |
Life of the investment................................ | 8 years | |
Required rate of return.............................. | 12% | |
Assets will be depreciated using straight line depreciation method |
Required:
- Show all calculations in good form. Answers without supporting calculations will earn zero marks.
- Calculate the annual incremental net income for all the eight (8) years.
- Using the net present value and the internal rate of return methods, is this a good investment?
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