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 2 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.
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 2 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Could you please only answer part D question?
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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