Choice correct answer with general accounting A new production facility requires an initial investment of $120,000 and has aprofitability index of 1.35. The facility is expected to generate cash flows over7 years with an internal rate of return of 12.6%. What is the present value ofthe net cash flows?A. $162,000B. $120,000C. $84,700D. $138,500

The Profitability Index (PI) is defined as:PI = Present Value of Net Cash Flows / Initial…

Answered: A new production facility requires an…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 3CMA

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Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
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