Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

TABLE 6.4 FACTORS FOR CALCULATING THE PRESENT VALUE OF $1 Tablerock Corp. is interested in reviewing its method of evaluating capital expenditure proposals using the

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

TABLE 6.4 FACTORS FOR CALCULATING THE PRESENT VALUE OF \$1 Tablerock Corp. is interested in reviewing its method of evaluating capital expenditure proposals using the accounting rate of return method. A recent proposal involved a $100,000 investment in a machine that had an estimated useful life of five years and an estimated salvage value of $20,000. The machine was expected to increase net income (and cash flows) before depreciation expense by $30,000 per year. The criteria for approving a new investment are that it have a rate of return of 16% and a payback period of three years or less. Use Table 6-4. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.) Required: a. Calculate the accounting rate of return on this investment for the first year. Assume straight-line depreciation. Based on this analysis, would the investment be made? b. Calculate the payback period for this investment. Based on this analysis, would the investment be made? c. Calculate the net present value of this investment using a cost of capital of 16%. Based on this analysis, would the investment be made? d. What recommendation would you make to the management of Tablerock Corp. about evaluating capital expenditure proposals? Calculate the accounting rate of return on this investment for the first year. Assume straight-line depreciation. Based on this analysis, would the investment be made? (Round your answer to 1 decimal place.) Calculate the payback period for this investment. Based on this analysis, would the investment be made? (Round your answer o 2 decimal places.) Calculate the net present value of this investment using a cost of capital of 16%. Based on this analysis, would the investment be made

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

Step: 3

blur-text-image

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

Nmap Network Exploration And Security Auditing Cookbook

Authors: Paulino Calderon

2nd Revised Edition

1786467453, 978-1786467454

More Books

Students also viewed these Accounting questions

Question

Writing a Strong Introduction

Answered: 1 week ago