Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Could you please only answer the part D question
Thankyou
![Question 1
Booth Company wants to buy a numerically controlled (NC) machine to be used in producing
specially machined parts for manufacturers of tractors. The outlay required is $960,000. The
NC equipment will last 5 years with no expected salvage value. The expected after-tax cash
flows associated with the project follow:
Year
Cash Revenues
Cash Expenses
1
$1,275,000
$900,000
1,475,000
1,015,000
3
1,650,000
1,200,000
4
1,358,000
1,118,000
5
1,550,000
1,225,000
Required:
A. Compute the payback period for the NC equipment.
B. Compute the NC equipment's ARR.
C. Compute the investment's NPV, assuming a required rate of return of 10%.
D. Compute the investment's IRR.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fef2af4ec-3ab4-4a40-a649-a9c66d33117c%2F0315ad56-91c3-4971-a35a-96e3d954f2e5%2Flocha1_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question 1
Booth Company wants to buy a numerically controlled (NC) machine to be used in producing
specially machined parts for manufacturers of tractors. The outlay required is $960,000. The
NC equipment will last 5 years with no expected salvage value. The expected after-tax cash
flows associated with the project follow:
Year
Cash Revenues
Cash Expenses
1
$1,275,000
$900,000
1,475,000
1,015,000
3
1,650,000
1,200,000
4
1,358,000
1,118,000
5
1,550,000
1,225,000
Required:
A. Compute the payback period for the NC equipment.
B. Compute the NC equipment's ARR.
C. Compute the investment's NPV, assuming a required rate of return of 10%.
D. Compute the investment's IRR.
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