Computing the payback period and unadjusted rate of return for the same investment opportunity LO 16-4

Norman Rentals can purchase a van that costs $132,000; it has an expected useful life of four years and no salvage value. Norman uses straight-line depreciation. Expected revenue is $54,780 per year. Assume that depreciation is the only expense associated with this investment.

b.

Determine the unadjusted rate of return based on the average cost of the investment. (Round your answer to 1 decimal place. (i.e., .234 should be entered as 23.4).)

UNADJUSTED RATE OF RETURN ( %)

Determining the internal rate of return

Merton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the companys cash outflow for operating expenses by $1,290,000 per year. The cost of the equipment is $6,408,255.60. Merton expects it to have a 8-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 15 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required
a.	Calculate the internal rate of return of the investment opportunity.
	INTERNAL RATE OF RETURN ( %) Determining the cash flow annuity with income tax considerations LO 16-2 To open a new store, Linton Tire Company plans to invest $342,000 in equipment expected to have a six -year useful life and no salvage value. Linton expects the new store to generate annual cash revenues of $323,000 and to incur annual cash operating expenses of $187,000. Lintons average income tax rate is 30 percent. The company uses straight-line depreciation. Required Determine the expected annual net cash inflow / outflow for each of the first four years after Linton opens the new store. (Negative amounts should be indicated by a minus sign.) NET CASH YEAR 1 YEAR 2 YEAR 3 YEAR 4