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 $97,000 investment in a machine that had an estimated useful life of five years and an estimated salvage value of $17,000. The machine was expected to increase net income (and cash flows) before depreciation expense by $29,000 per year. The criteria for approving a new investment are that it have a rate of return of 14% 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 14%. 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? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D 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.) % Accounting rate of return Based on the analysis, the investment would be made 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 $97,000 investment in a machine that had an estimated useful life of five years and an estimated salvage value of $17,000. The machine was expected to increase net income (and cash flows) before depreciation expense by $29,000 per year. The criteria for approving a new investment are that it have a rate of return of 14% 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 14%. 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? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Calculate the payback period for this investment. Based on this analysis, would the investment be made? (Round your answer to 2 decimal places.) years Payback period Based on the analysis, the investment would be made
