Question 5:

Brandon Company is contemplating the purchase of a new piece of equipment for $45,000. Brandon is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $18,000, $15,000, $9,000, $6,000 and $3,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. The hurdle rate for accepting new capital investment projects is 4%, after-tax.

Required:Calculate:

A) The payback period in years (rounded to the nearest 10th of a year) for this proposed investment (assume that the after-tax cash inflows occur evenly throughout the year) and the estimated (present value) payback period, in years (rounded to two decimal places).

B) The estimated accounting rate of return (ARR) on this project (rounded to two decimal points), based on the initial investment.

C)The estimated net present value (NPV) of the proposed investment (rounded to the nearest hundred dollars).

D) The estimated internal rate of return (IRR) on this investment.