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Emma's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Emma's Bakery has a 14% after-tax required rate of return and a 33% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. PE (Click the icon to view the estimated cash flows for the oven.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table i Data Table Read the requirements - X Requirement 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return. a. Net present value. (Use factors to three decimal places, X.XXX. Round intermediary calculations and your final answer to the nearest whole dollar.) The net present value is $ 5,406 Relevant Cash Flows at End of Each Year 0 1 2 3 (90,000) $ Initial oven investment Annual cash flows from operations (excluding the depreciation effect) Cash flow from terminal disposal of oven $ 36,000 $ b. Payback period. (Round your answer to two decimal places.) The payback period is 2.93 years. c. Internal rate of return. (Round intermediary calculations to the nearest whole dollar and round the IRR to two decimal places, X.XX%.) The internal rate of return (IRR) is 16.80 % 36,000 $ 36,000 $ $ 36,000 10,000 Print Done Requirement 2. Calculate accrual accounting rate of return based on net initial investment. (Round intermediary calculations to the nearest whole dollar. Round the final rate to The accrual accounting rate of return (AARR) is 11.91 % based on net initial investment. Emma's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Emma's Bakery has a 14% after-tax required rate of return and a 33% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. PE (Click the icon to view the estimated cash flows for the oven.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table i Data Table Read the requirements - X Requirement 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return. a. Net present value. (Use factors to three decimal places, X.XXX. Round intermediary calculations and your final answer to the nearest whole dollar.) The net present value is $ 5,406 Relevant Cash Flows at End of Each Year 0 1 2 3 (90,000) $ Initial oven investment Annual cash flows from operations (excluding the depreciation effect) Cash flow from terminal disposal of oven $ 36,000 $ b. Payback period. (Round your answer to two decimal places.) The payback period is 2.93 years. c. Internal rate of return. (Round intermediary calculations to the nearest whole dollar and round the IRR to two decimal places, X.XX%.) The internal rate of return (IRR) is 16.80 % 36,000 $ 36,000 $ $ 36,000 10,000 Print Done Requirement 2. Calculate accrual accounting rate of return based on net initial investment. (Round intermediary calculations to the nearest whole dollar. Round the final rate to The accrual accounting rate of return (AARR) is 11.91 % based on net initial investment
