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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:
- Initial Investment: $900,000
- Depreciation @ 12%: $108,000/year
- Book Values at Year-End: $792,000, $684,000, $576,000, $468,000, $360,000, $252,000, $144,000, $36,000, $0
- Cash Flows: $180,000, $200,000, $160,000, $140,000, $120,000, $100,000, $80,000, $60,000, $40,000
- Profits: $72,000, $92,000, $52,000, $32,000, $12,000, $-8,000, $-28,000, $-48,000
- ARR: 8%, 9.5%, 5.78%, 3.56%, 1.22%, -0.89%, -3.89%, -6.67%
- Average Profits: $21,000
- Average Investment: $450,000
- Average ARR: 4.67%
- Payback: 5.5 years
- NPV @ 10%: $50,000
Requirements:
- Compute ARR, payback period, and NPV.
- Assess the investment's viability.
- Provide a final recommendation.
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