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YOU ARE EVALUATING THE PURCHASE OF EQUIPMENT Data You want to earn a minimum of 12.00% Cost of equipment $ 345,000 Trade in value of
YOU ARE EVALUATING THE PURCHASE OF EQUIPMENT | ||||||||||||||
Data | ||||||||||||||
You want to earn a minimum of | 12.00% | |||||||||||||
Cost of equipment | $ 345,000 | |||||||||||||
Trade in value of the equipment | $ - | |||||||||||||
How many years to earn revenue from the equipment | 8 Years | |||||||||||||
Projected Annual Income Statement: | ||||||||||||||
Sales | $ 245,000 | This Income Statement shows what is expected to if the new equipment is purchased | ||||||||||||
Less: | ||||||||||||||
Manufacturing costs | $ 140,000 | |||||||||||||
Depreciation | 43,125 | |||||||||||||
Shipping and administrative costs | 22,000 | 205,125 | ||||||||||||
Income before income taxes | 39,875 | |||||||||||||
Income tax expense | 10,800 | |||||||||||||
Net income | $ 29,075 | |||||||||||||
Required | ||||||||||||||
(a) | Net annual cash flow ( 2points) | $72,200 | Remember, net cash flow and net income are not the same thing. | |||||||||||
Payback period (2 points) | 4.778 | years | ||||||||||||
(b) | 10 Points | Time Period | Cash Flows | Discount Factor FROM TABLES APPENDIX G | Present Value | |||||||||
Net annual cash flow | 1-8 | |||||||||||||
Purchase price of equipment | 0 | This should be a negative value | ||||||||||||
NPV- USING tables>>>>> | ||||||||||||||
(c) | 10 Points | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | ||||
Net Annual Cash Flow | ||||||||||||||
Equipment purchase price | ||||||||||||||
TOTAL | ||||||||||||||
NPV | $ - | Using NPV function in Excel | ||||||||||||
(d) | IRR (3 Points) | #NUM! | This should be in % format and should be somewhere around the rate given in the data section. If it's not, then you've done something wrong! | |||||||||||
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