Kendra'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. Kendra's Bakery has a 12% after-tax required rate of return and a 31% income tax rate. Equipment is subject to a 20% CCA rate declining balance for income tax purposes. i (Click the icon to view the necessary assumptions.) (Click the icon to view the estimated cash flows for the oven.) (Click the icon to view the present value of $1 factors.) (Click the icon to view the present value of annuity of $1 factors.) Required Requirement 1a. Calculate the net present value. (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) The net present value is $ Requirement 1b. Calculate the payback period. (Round your answer to two decimal places.) The payback period is years. Requirement 1c. Calculate the internal rate of return. (Round your answer to two decimal places.) The internal rate of return is %. Requirement 2. Compare and contrast the capital budgeting methods in requirement 1. Both the methods use a discounted cash flow approach in which of a project's expected future cash inflows and outflows are measured as if they occurred at a single point. The method considers cash flows only up to the time when the expected future cash inflows recoup the net initial investment and it ignores profitability and the time value of money. to view the nec 7 to view the pre More info Assume depreciation is calculated on a straight-line basis for accounting 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. 1. Calculate the -sent value of th Ir a negative net pr value is $ Print Done . - X riod Estimated cash flows -. Cd Relevant Cash Flows at End of Each Year of 0 1 2 3 4 Cor Initial oven investment $ (134,000) sh Annual cash flows from operations asuri cte $ 50,000 $ 50,000 $ 50,000 $ 50,000 Dup (excluding the depreciation effect) Cash flow from terminal disposal of oven 0 Kendra'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. Kendra's Bakery has a 12% after-tax required rate of return and a 31% income tax rate. Equipment is subject to a 20% CCA rate declining balance for income tax purposes. i (Click the icon to view the necessary assumptions.) (Click the icon to view the estimated cash flows for the oven.) (Click the icon to view the present value of $1 factors.) (Click the icon to view the present value of annuity of $1 factors.) Required Requirement 1a. Calculate the net present value. (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) The net present value is $ Requirement 1b. Calculate the payback period. (Round your answer to two decimal places.) The payback period is years. Requirement 1c. Calculate the internal rate of return. (Round your answer to two decimal places.) The internal rate of return is %. Requirement 2. Compare and contrast the capital budgeting methods in requirement 1. Both the methods use a discounted cash flow approach in which of a project's expected future cash inflows and outflows are measured as if they occurred at a single point. The method considers cash flows only up to the time when the expected future cash inflows recoup the net initial investment and it ignores profitability and the time value of money. to view the nec 7 to view the pre More info Assume depreciation is calculated on a straight-line basis for accounting 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. 1. Calculate the -sent value of th Ir a negative net pr value is $ Print Done . - X riod Estimated cash flows -. Cd Relevant Cash Flows at End of Each Year of 0 1 2 3 4 Cor Initial oven investment $ (134,000) sh Annual cash flows from operations asuri cte $ 50,000 $ 50,000 $ 50,000 $ 50,000 Dup (excluding the depreciation effect) Cash flow from terminal disposal of oven 0
