Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Gravina Company is planning to spend $5, 500 for a machine that it will depreciate on a straight-line basis over 10 years with no salvage
Gravina Company is planning to spend $5, 500 for a machine that it will depreciate on a straight-line basis over 10 years with no salvage value. The machine will generate additional cash revenues of $1, 100 a year. Gravina will incur no additional costs except for depreciation. Its income tax rate is 40%. (For parts 3 and 4 of this question use Table 1 and/or Table 2.) Required: What is the payback period of the proposed investment under the assumption that the cash inflows occur evenly throughout the year? (Round your answer to 2 decimal places.) What is the accounting (book) rate of return (ARR) based on the initial investment outlay? (Round your answer to 1 decimal place.) What is the maximum amount that Gravina Company should invest if it desires to earn an internal rate of return (IRR) of 13%? (Round your final answer to the nearest whole dollar amount.) What is the minimum annual (pretax) cash revenue required for the project to earn a 13% internal rate of return? (Round your intermediate calculations and Final answer to the nearest whole dollar amount.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started