1. Calculate (a) net present value, (b) payback period, (c) discounted payback period, and (d) internal rate of return. 2. Compare and contrast the capital budgeting methods in requirement 1.
1. Calculate (a) net present value, (b) payback period, (c) discounted payback period, and (d) internal rate of return. 2. Compare and contrast the capital budgeting methods in requirement 1.
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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Transcribed Image Text:Cadet Inc. is considering the purchase of new equipment that will automate production and thus reduce labor costs. Cadet made the following estimates related to the new machinery:
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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 requirements.
C
Requirement 1. Calculate (a) net present value, (b) payback period, (c) discounted payback period, and (d) internal rate of return.
a. Net present value. (Round intermediary calculations to the nearest whole dollar. Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest
whole dollar.)
The net present value is
Requirements
1.
Calculate (a) net present value, (b) payback period, (c) discounted
payback period, and (d) internal rate of return.
2. Compare and contrast the capital budgeting methods in requirement 1.
Print
Done
X
Data table
Cost of the equipment
Reduced annual labor costs
Estimated life of equipment
Terminal disposal value
After-tax cost of capital
Tax rate
Assume depreciation is calculated on a straight-line basis
for tax purposes. Assume all cash flows occur at year-end
except for initial investment amounts.
Print
$164,000
$50,000
5 years
$0
10%
30%
Done
X
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