Question
Port Pharmacy is considering the purchase of a copying machine, which it will make available to customers at a percopy charge. The copying machine has
Port Pharmacy is considering the purchase of a copying machine, which it will make available to customers at a percopy charge. The copying machine has an initial cost of $8,500, an estimated useful life of five years, and an estimated salvage value of $2,500. The estimated annual revenue and expenses relating to operation of the machine are as follows:
Revenue...................................................................................................................... $9,000
Expenses other than depreciation................................................................................... $5,500
All revenue will be received in cash; expenses other than depreciation will be paid in cash. Depreciation will be computed by the straightline method.
Compute for this proposal the expected:
a Annual increase in Ports net income: $____________
a Annual net cash flow: $____________
b Payback period: ____________ years
c Return on average investment: ___________ %
d Net present value (round to the nearest dollar) of the proposed investment, discounted at an annual rate of 15% (Tables show that the present value of $1 to be received in five periods, discounted at 15%, is 0.497 and that the present value of a fiveyear annuity of $1, discounted at 15%, is 3.352): $____________
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