Clyde Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment wilI have an initial cost of $600,000 and have an 8 year life. The equipment has no salvage value. The hurdle rate is 8%. Ignore income taxes. (Present Value of Annuity for 8%: 5.7466; 12%:4.9676) - Answer the following: 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 12% hurdle rate? e. Based on the NPV calculations, in what range would the equipment's internal rate of return fall?

Clyde Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment wilI have an initial cost of $600,000 and have an 8 year life. The equipment has no salvage value. The hurdle rate is 8%. Ignore income taxes. (Present Value of Annuity for 8%: 5.7466; 12%:4.9676) - Answer the following: 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 12% hurdle rate? e. Based on the NPV calculations, in what range would the equipment's internal rate of return fall?

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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Ignore income taxes in this problem.) Your Company is considering a project with an 8-year life. Your required rate of return is 10%. What is the net present value of the project? Project Cost of equipment needed now $80,000 Working capital investment needed now 115,000 Annual cash operating inflows 27,000 Salvage value of equipment in 6 years 0 Group of answer choices ($ 270). $ 2,750. $73,375. ($26,625).
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