Mini-Exercise 16-8 (Algo) Payback period and accounting rate of return LO 16-9, 16-10Lakeside Incorporated is considering replacing old production equipment with state-of-the-art technology that will allow productioncost savings of $10,000 per month. The new equipment will have a five-year life and cost $450,000, with an estimated salvage valueof $40,000 Lakeside's cost of capital is 9%. Lakeside Incorporated uses a straight-line depreciation method.Required:Calculate the payback period and the accounting rate of return for the new production equipment.Note: Round your answers to 2 decimal places.Payback periodAccounting rate of return3.75 years

The payback period, a monetary metric, estimates how long it will take an investment to recover its…

Answered: Mini-Exercise 16-8 (Algo) Payback…

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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#34 Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.96 million per year and increased operating costs of $689,148.00 per year. Caspian Sea Drinks' marginal tax rate is 28.00%. The internal rate of return for the RGM- 7000 is Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434)) unanswered not_submitted Attempts Remaining: Infinity
QUESTION 1 Frank Einstein Co. is a firm that specializes in selling Halloween decorations. It is evaluating a new project that requires an initial investment of $1.42 million. The asset will be depreciated to zero over its 3-year life. The company's analysts estimate that in the first year, the project will generate $1.09 million in revenues. The revenue will increase by 7% per year in the following two years. The costs in the first year will be $475,000 and they will increase by 5% per year thereafter. The corporate tax rate is 25% and the required return is 12%. What is the NPV of the project?
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Typed solution only A company is trying to make a long-term investment decision: should it or should it not manufacture a new product? The company believes that$208,000 would need to be immediately invested into buying the required production equipment. At the end of Year 4 this investment project is likely to end. When that happens, all used equipment will be sold and bring the company $187,000 as the after-tax salvage value. A cash reserve in the amount of $38,000 would need to be set aside when the project begins, so that the company can cover any kind of repair costs to maintain the equipment, should those arise. This cash reserve will be increased by $6,000 each year and recovered when the project ends. The company estimates $75,000in after-tax profits (i.e., operating cash flow) each year of the project. The required rate of return is 10.8%. Calculate the Net Present Value of this project. Increase decimal places for any intermediate calculations, from the default 2 to 6 or…
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PROBLEM 2 fol Acoustics, Inc. (AA) projects unit sales for a new seven-octave voice emulation implantas follows: Year 1 2 3 4 5 Production of the implants will require $2,350,000 in net working capital to start and additional net working capital investments each year equal to 25 percent of the projected sales increase for the following year. Total fixed costs are $1,490,000 per year, variable production costs are $239 per unit, and the units are priced at $359 each. The equipment needed to begin production has an installed cost of $30,000,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS (MACRS Table) property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. AAI is in the 40 percent marginal tax bracket and has a required return on all its projects of 16 percent. Unit Sales 115,000 134,000 122,000 105,000 91,000 What are operating cash flows,…
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