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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?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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: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.
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
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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