Bowman Corporation is considering an investment in special-purpose equipment to enable the company to obtain a five-year government contract for the manufacture of a special item. The equipment costs $500,000 and would have no salvage value when the contract expires at the end of the five years. Estimated annual operating results of the project are as follows. Revenue from contract sales.. $700,000 Expenses other than depreciation. $400,000 100.000 Depreciation (straight-line basis). Increase in net income from contract work. 500.000 $200,000
Bowman Corporation is considering an investment in special-purpose equipment to enable the company to obtain a five-year government contract for the manufacture of a special item. The equipment costs $500,000 and would have no salvage value when the contract expires at the end of the five years. Estimated annual operating results of the project are as follows. Revenue from contract sales.. $700,000 Expenses other than depreciation. $400,000 100.000 Depreciation (straight-line basis). Increase in net income from contract work. 500.000 $200,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Bowman Corporation is considering an investment in special-purpose equipment to enable the company to obtain a five-year government contract for the manufacture of a special item. The equipment costs $500,000 and would have no salvage value when the contract expires at the end of the five years. Estimated annual operating results of the project are as follows.
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 Bowman’s proposal to undertake the contract work.
Payback period.
Return on average investment.
Net present value of the proposal to undertake contract work, discounted at an annual rate of 10 percent.
Transcribed Image Text:EXERCISE 26.6
Analyzing a Capital Investment Proposal
Bowman Corporation is considering an investment in special-purpose equipment to enable the company to obtain a five-year government contract for the manufacture of a special item.
The equipment costs $500,000 and would have no salvage value when the contract expires at the end of the five years. Estimated annual operating results of the project are as follows.
Revenue from contract sales
$700,000
$400,000
Expenses other than depreciation
Depreciation (straight-line basis)
Increase in net income from contract work.
100.000
500,000
$200,000
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