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Nixon Harvesting is considering the purchase of a new tractor. The tractor costs $900,000, and has a 6-year life. The company uses the straight-line depreciation
Nixon Harvesting is considering the purchase of a new tractor. The tractor costs $900,000, and has a 6-year life. The company uses the straight-line depreciation method, and the tractor has no residual value. The tractor will produce annual cash inflows of $400,000 and annual cash outflows of $190,000. Management has a required rate of return of 9%. For purposes of responding to each requirement below, you may assume no income taxes. | ||||
(a) | Calculate the net present value of the tractor investment, assuming an 9% rate of return. | |||
(b) | Calculate the accounting rate of return for the tractor investment. | |||
(c) | Calculate the internal rate of return for the tractor investment. | |||
(d) | Calculate the payback period for the tractor investment. |
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