Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Starbucks is evaluating a $900,000 investment in new coffee machines. The details are: Initial Investment: $900,000 Depreciation @ 12%: $108,000/year Book Values at Year-End: $792,000,

Starbucks is evaluating a $900,000 investment in new coffee machines. The details are:

  1. Initial Investment: $900,000
  2. Depreciation @ 12%: $108,000/year
  3. Book Values at Year-End: $792,000, $684,000, $576,000, $468,000, $360,000, $252,000, $144,000, $36,000, $0
  4. Cash Flows: $180,000, $200,000, $160,000, $140,000, $120,000, $100,000, $80,000, $60,000, $40,000
  5. Profits: $72,000, $92,000, $52,000, $32,000, $12,000, $-8,000, $-28,000, $-48,000
  6. ARR: 8%, 9.5%, 5.78%, 3.56%, 1.22%, -0.89%, -3.89%, -6.67%
  7. Average Profits: $21,000
  8. Average Investment: $450,000
  9. Average ARR: 4.67%
  10. Payback: 5.5 years
  11. NPV @ 10%: $50,000

Requirements:

  1. Compute ARR, payback period, and NPV.
  2. Assess the investment's viability.
  3. Provide a final recommendation.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Reporting and Analysis

Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon

6th edition

9780077632182, 78025672, 77632184, 978-0078025679

More Books

Students also viewed these Accounting questions

Question

Explain the regulation of the secretions of the small intestine.

Answered: 1 week ago