Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I need this completed asap, thank you! Problem 1 Equipment is purchased at a cost of $80,000. As a result, annual cash revenues are expected

I need this completed asap, thank you!

Problem 1

Equipment is purchased at a cost of $80,000. As a result, annual cash revenues are expected to increase by $45,000; annual cash expenses are expected to increase by $12,000; straight-line depreciation is used; the asset has a seven-year life; the salvage value is $10,000. Assume the company is in a 34% tax bracket.

  1. Determine the accounting rate of return? (round to the nearest %)
  2. Determine the payback period?
  3. Determine the NPV assuming a minimum required rate of return of 8%?

Problem 2 (Ignore taxes for this problem)

Terra Networks is planning to buy injection molding machinery costing $180,000. This machinerys expected useful life is 5 years. They require a minimum rate of return of 8%, and have calculated the following data pertaining to the purchase and operation of this machinery:

Year

Estimated Annual

Cash Inflows

Estimated Annual

Cash Outflows

Depreciation

1

$ 40,000

$8,000

$28,000

2

$50,000

$18,000

$28,000

3

$75,000

$22,000

$28,000

4

$105,000

$35,000

$28,000

5

$110,000

$50,000

$28,000

  • Determine Terra's payback period, accounting rate of return, and NPV for this investment?

Problem 3

Company X is planning on purchasing a 3-D printer. The expected cost of this printer is $75,000, and it is expected to have a useful life of 6 years and an estimated salvage value of $3,000. The printer is expected to produce cash savings of $23,000 per year in reduced labor costs and the cash operating costs to run this printer are estimated to be $5,000 per year. Assuming Company X is in the 34% tax bracket and has a minimum desired rate of return of 12% on this investment.

Determine the:

  1. (a) payback period, (b) ARR, and (c) NPV (Ignoring taxes), and
  2. (a) payback period, (b) ARR, and (c) NPV (Assuming taxes).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Carl S. Warren, Christine Jonick, Jennifer Schneider

16th Edition

1337913103, 9781337913102

More Books

Students also viewed these Accounting questions

Question

2. Information that comes most readily to mind (availability).

Answered: 1 week ago

Question

3. An initial value (anchoring).

Answered: 1 week ago

Question

4. Similarity (representativeness).

Answered: 1 week ago