Briar Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net cash flow of $204,000. The equipment will have an initial cost of $1,204,000 and an 8-year useful life. The salvage value of the equipment is estimated to be $204,000. Briar's cost of capital is 8%. (Future Value of $1, Present Value of $1 Future Value Annuity of $1, Present Value Annuity of $1) Note: Use appropriate factor from the PV tables. Required: a. What is the accounting rate of return? b. What is the payback period? c. What is the net present value? d. What would the net present value be with a 14% cost of capital? e. Based on the NPV calculations, what would be the equipment's internal rate of return?
Briar Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net cash flow of $204,000. The equipment will have an initial cost of $1,204,000 and an 8-year useful life. The salvage value of the equipment is estimated to be $204,000. Briar's cost of capital is 8%. (Future Value of $1, Present Value of $1 Future Value Annuity of $1, Present Value Annuity of $1) Note: Use appropriate factor from the PV tables. Required: a. What is the accounting rate of return? b. What is the payback period? c. What is the net present value? d. What would the net present value be with a 14% cost of capital? e. Based on the NPV calculations, what would be the equipment's internal rate of return?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I only need help on D and E. Please show me how you go your answer. Thank you!
Transcribed Image Text:Briar Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an
annual increase in net cash flow of $204,000. The equipment will have an initial cost of $1,204,000 and an 8-year useful life. The
salvage value of the equipment is estimated to be $204,000. Briar's cost of capital is 8%. (Future Value of $1, Present Value of $1
Future Value Annuity of $1, Present Value Annuity of $1)
Note: Use appropriate factor from the PV tables.
Required:
a. What is the accounting rate of return?
b. What is the payback period?
c. What is the net present value?
d. What would the net present value be with a 14% cost of capital?
e. Based on the NPV calculations, what would be the equipment's internal rate of return?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Net Present Value
Required C
Required D Required E
What would the net present value be with a 14% cost of capital?
Note: Negative value should be indicated by a minus sign. Round your answer to nearest dollar amount.
Transcribed Image Text:TABLE 11.2A Present Value of $1
Periods
1
2
3
4
5
6
7
8
9
10
20
Periods
8
HEMAFETE
1
2
3
4
5
6
7
8
9
10
20
2%
3%
0.9804
0.9709
0.9612
0.9426
0.9423
0.9151
0.9238 0.8885
0.9057 0.8626
0.8880 0.8375
0.8706
0.8131
0.8535
0.7894
0.8368 0.7664
0.8203
0.7441
0.6730
0.5537
10%
9%
0.9174
0.9091
0.8417 0.8264
0.7722 0.7513
0.7084 0.6830
0.6499 0.6209
0.5963 0.5645
0.5470 0.5132
0.5019 0.4665
0.4604
0.4241
0.4224
0.3855
0.1784 0.1486
4%
0.9615
0.9246
0.8890
0.8548
0.8219
0.7903
0.7599
0.7307
0.7026
0.6756
11%
0.9009
0.4564
12%
0.8929
0.8116 0.7972
0.7312 0.7118
0.6587 0.6355
0.5935 0.5674
0.5346 0.5066
0.4817 0.4523
0.4339
0.4039
0.3909 0.3606
0.3522
0.3220
0.1240
0.1037
3.75%
0.9639
0.9290
0.8954
0.8631
0.8319
0.8018
0.7728
0.7449
0.7180
0.6920
0.4789
5%
4.25%
0.9592 0.9524
0.9201 0.9070
0.8826 0.8638
0.8466 0.8227
0.8121 0.7835
0.7790 0.7462
0.7473
0.7107
0.7168 0.6768
0.6876
0.6446
0.6595
0.6139
0.3769
0.4350
13%
0.8850
0.7831
0.6931
0.6133
0.5428
0.4803
0.4251
0.3762
0.3329
0.2946
0.0868
14%
0.8772
0.7695
0.6750
0.5921
0.5194
0.4556
0.3996
0.3506
0.3075
0.2697
0.0728
6%
0.9434
0.8900
0.8396
0.7921
0.7473
0.7050
0.6651
0.6274
0.5919
0.5584
0.3118
15%
0.8696
0.7561
0.6575
0.5718
0.4972
0.4323
0.3759
0.3269
0.2843
0.2472
0.0611
7%
0.9346
8%
0.9259
0.8573
0.8734
0.8163
0.7938
0.7629
0.7350
0.7130
0.6806
0.6663
0.6302
0.6227
0.5835
0.5820 0.5403
0.5439
0.5002
0.5083
0.4632
0.2584
0.2145
20%
25%
0.8333
0.8000
0.6944 0.6400
0.5787
0.5120
0.4823
0.4096
0.4019
0.3277
0.3349 0.2621
0.2791
0.2097
0.2326
0.1678
0.1938
0.1342
0.1615
0.1074
0.0261 0.0115
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