Question
Flag Bowman Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year government contract for the manufacture of a
Flag Bowman Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year government contract for the manufacture of a special item. The equipment costs $276,000 and would have no salvage value when the contract expires at the end of the four years. Estimated annual operating results of the project are as follows:
Revenue from contract sales $ 302,000
Expenses other than depreciation $ 210,000 Depreciation (straight-line basis) 69,000 279,000
Increase in net income from contract work $23,000
b. Return on average investment? (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3).
c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 5 percent. (Refer to the annuity table in Exhibit 264.) (Round your "PV factors" to 3 decimal places.)
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