Gibson Electronics is considering investing in manufacturing equipment expected to cost $280,000 The equipment has an estimated useful life of four years and a salvage value of $15,000 It is expected to produce incremental cash revenues of $140,000 per year Gibson has an effective income tax rate of 40 percent and a desired rate of return of 10 percent (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided ) Required Determine the net present value and the present value index of the investment, assuming that Gibson uses straight line depreciation for financial and income tax reporting Determine the net present value and the present value index of the investment, assuming that Gibson uses double declining balance depreciation for financial and income tax reporting Determine the payback period and unadjusted rate of return (use average investment), assuming that Gibson uses straight line depreciation Determine the payback period and unadjusted rate of return (use average investment), assuming that Gibson uses double declining balance depreciation ( Note Use average annual cash flow when computing the payback period and average annual income when determining the unadjusted rate of return )

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Posted on Sep 30, 2024

Gibson Electronics is considering investing in manufacturing equipment expected to cost $280,000. The equipment has an estimated useful life of four years and a salvage

Gibson Electronics is considering investing in manufacturing equipment expected to cost $280,000. The equipment has an estimated useful life of four years and a salvage value of $15,000. It is expected to produce incremental cash revenues of $140,000 per year. Gibson has an effective income tax rate of 40 percent and a desired rate of return of 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required

Determine the net present value and the present value index of the investment, assuming that Gibson uses straight-line depreciation for financial and income tax reporting.
Determine the net present value and the present value index of the investment, assuming that Gibson uses double-declining-balance depreciation for financial and income tax reporting.

Determine the payback period and unadjusted rate of return (use average investment), assuming that Gibson uses straight-line depreciation.
Determine the payback period and unadjusted rate of return (use average investment), assuming that Gibson uses double-declining-balance depreciation. (Note: Use average annual cash flow when computing the payback period and average annual income when determining the unadjusted rate of return.)