Bob Jensen Inc. purchased a $580,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. The machine is expected to have a 10-year useful life with no salvage value. Jensen uses straight-line depreciation. Jensen uses a 10% discount rate in evaluating capital investments, the investment is subject to taxes, and the projected pretax operating cash inflows are as follows: Year Pretax Cash Inflow 1 $ 58,000 2 71,000 3 107,000 4 178,000 5 214,000 6 268,000 7 241,000 8 214,000 9 107,000 10 71,000 Jensen has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during the period of this investment. The firm uses straight-line depreciation. Assume, for simplicity, that MACRS depreciation rules do not apply. Required: Using Excel, compute the following for the proposed investment: 1. The payback period, under the assumption that the cash inflows occur evenly throughout the year. (Do not round intermediate calculations. Round your final answer to 1 decimal place.) 2. The accounting (book) rate of return based on (a) initial investment, and (b) average investment. (Round your final answers to 1 decimal place.) 3. The net present value (NPV). (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.)
Bob Jensen Inc. purchased a $580,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. The machine is expected to have a 10-year useful life with no salvage value. Jensen uses straight-line
| Year | Pretax |
|||
| 1 | $ | 58,000 | ||
| 2 | 71,000 | |||
| 3 | 107,000 | |||
| 4 | 178,000 | |||
| 5 | 214,000 | |||
| 6 | 268,000 | |||
| 7 | 241,000 | |||
| 8 | 214,000 | |||
| 9 | 107,000 | |||
| 10 | 71,000 | |||
Jensen has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during the period of this investment. The firm uses straight-line depreciation. Assume, for simplicity, that MACRS depreciation rules do not apply.
Required:
Using Excel, compute the following for the proposed investment:
1. The payback period, under the assumption that the cash inflows occur evenly throughout the year. (Do not round intermediate calculations. Round your final answer to 1 decimal place.)
2. The accounting (book)
3. The
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