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.Calculate (a) net present value, (b) payback period, and (c) internal rate of return.

.Calculate (a) net present value, (b) payback period, and (c) internal rate of return.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Kendra's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Kendra's Bakery has a 10% after-tax required rate of return and a 30% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. E (Click the icon to view the estimated cash flows for the oven.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the reguirements. Requirement 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return. a. Net present value. (Use factors to three decimal places, X.XXX. Round intermediary calculations and your final answer to the nearest whole dollar.) Data table The net present value is 1 Relevant Cash Flows at End of Each Year | 2 Year 0 Year 1 Year 2 Year 3 Year 4 S (62,000) 3 Initial oven investment Annual cash flows from operations 4 (excluding the depreciation effect) $ 24,000 $ 24,000 $ 24,000s 24,000 5 Cash flow from terminal disposal of oven $ 2,000 Print Done
Transcribed Image Text:Kendra's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Kendra's Bakery has a 10% after-tax required rate of return and a 30% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. E (Click the icon to view the estimated cash flows for the oven.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the reguirements. Requirement 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return. a. Net present value. (Use factors to three decimal places, X.XXX. Round intermediary calculations and your final answer to the nearest whole dollar.) Data table The net present value is 1 Relevant Cash Flows at End of Each Year | 2 Year 0 Year 1 Year 2 Year 3 Year 4 S (62,000) 3 Initial oven investment Annual cash flows from operations 4 (excluding the depreciation effect) $ 24,000 $ 24,000 $ 24,000s 24,000 5 Cash flow from terminal disposal of oven $ 2,000 Print Done
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