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Natchez Company is considering the purchase of new equipment that will cost $125,000. The an estimated useful life of five years and to expected salvage
Natchez Company is considering the purchase of new equipment that will cost $125,000. The an estimated useful life of five years and to expected salvage value. The company's cost of capital is 12% Required: 1) Ignoring income taxes compute the net present value and internal rate of return 2) Should the equipment be purchased? Why or why not? Bigtime Video is considering installing tanning beds in its video rental stores. The beds cost $200,000 and have an estimated six-year useful life. Ignore income taxes. The following pro forma income statement is provided: $ 86,000 Tanning bed revenue Less expenses Bulbs, supplies, etc Insurance Depreciation Maintenance Net income $20,000 10,000 24,000 6.000 60.000 $26.000 Required: 1) Bigtime Video would like to recoup its original investment in less than five years. Compute the payback period for the tanning bed investment. Would you recommend that the beds be purchased? Why or why not? 2) Bigtime Video's minimum acceptable unadjusted rate of return is 12%. Compute the unadjusted rate of return on the original investment. Would you recommend that the beds be purchased? Why or why not
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