a. Payback period. b. Return on average investment. (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3).) c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 10 percent. (Refer to the annuity table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a
four-year municipal contract. The equipment costs $222,000 and would have no salvage value when the contract
expires at the end of four years. Estimated annual operating results of the project are as follows.
Revenue from contract sales.
Expenses other than depreciation
Depreciation (straight-line basis)
Increase in net income from contract work
$211,000
55,500
All revenue and all expenses other than depreciation will be received or paid in cash in the same period as
recognized for accounting purposes. Compute the following for Winett's proposal to undertake this contract.
a. Payback period
b.
C.
a. Payback period.
b. Return on average investment. (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as
12.3).)
c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 10 percent. (Refer
to the annuity table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.)
Return on average investment
Net present value
$322,000
266,500
$ 55,500
years
%
Transcribed Image Text:Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year municipal contract. The equipment costs $222,000 and would have no salvage value when the contract expires at the end of four years. Estimated annual operating results of the project are as follows. Revenue from contract sales. Expenses other than depreciation Depreciation (straight-line basis) Increase in net income from contract work $211,000 55,500 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Winett's proposal to undertake this contract. a. Payback period b. C. a. Payback period. b. Return on average investment. (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3).) c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 10 percent. (Refer to the annuity table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.) Return on average investment Net present value $322,000 266,500 $ 55,500 years %
EXHIBIT 26-4 Present Value of a $1 Annuity Receivable Each Period for n
Periods
Number of
Periods
(n)
1
2
3
4
5
6
7
S
9
10
20
24
36
1%
Present Value of $1 to Be Received Periodically for n Periods
Discount Rate
0.990
1.970
2.941
3.902
4.853
5.795
6.728
7.652
8.566
9.471
112%
5%
0.985
0.952
1.956
1.859
2.912
2.723
3.854
3.546
4.783
4.329
5.697
5.076
6.598
5.786
7.486
6.463
8.361
7.108
9.222
7.722
18.046 17.169 12.462
21.243 20.030
13.799
30.108
27.661
16.547
6%
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
11.470
12.550
14.621
8%
10%
0.926
0.909
1.783 1.736
2.577
2.487
3.312
3.170
3.993 3.791
4.623 4.355
5.206 4.868
5.747
5.335
6.247 5.759
6.710 6.145
9.818
8.514
10.529 8.985
11.717 9.677
12%
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
7.469
7.784
8.192
15%
0.870
1.626
2.283
2.855
3.352
3.784
4.160
4.487
4.772
5.019
6.259
6.434
6.623
20%
0.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
4.870
4.937
4.993
Transcribed Image Text:EXHIBIT 26-4 Present Value of a $1 Annuity Receivable Each Period for n Periods Number of Periods (n) 1 2 3 4 5 6 7 S 9 10 20 24 36 1% Present Value of $1 to Be Received Periodically for n Periods Discount Rate 0.990 1.970 2.941 3.902 4.853 5.795 6.728 7.652 8.566 9.471 112% 5% 0.985 0.952 1.956 1.859 2.912 2.723 3.854 3.546 4.783 4.329 5.697 5.076 6.598 5.786 7.486 6.463 8.361 7.108 9.222 7.722 18.046 17.169 12.462 21.243 20.030 13.799 30.108 27.661 16.547 6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 11.470 12.550 14.621 8% 10% 0.926 0.909 1.783 1.736 2.577 2.487 3.312 3.170 3.993 3.791 4.623 4.355 5.206 4.868 5.747 5.335 6.247 5.759 6.710 6.145 9.818 8.514 10.529 8.985 11.717 9.677 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 7.469 7.784 8.192 15% 0.870 1.626 2.283 2.855 3.352 3.784 4.160 4.487 4.772 5.019 6.259 6.434 6.623 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.870 4.937 4.993
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