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Santana Rey is considering the purchase of equipment for Busin company to add a new product to its computer furniture line. The $366,240 and to have a six-year life and no salvage value. The e income of $15,039 and net cash flow of $76,836 in each year of an 8% return on all investments. (PV of $1, FV of $1, PVA of $1, an factor(s) from the tables provided.) (Negative net present valu minus sign. Do not round intermediate calculations. Round you

Santana Rey is considering the purchase of equipment for Busin company to add a new product to its computer furniture line. The $366,240 and to have a six-year life and no salvage value. The e income of $15,039 and net cash flow of $76,836 in each year of an 8% return on all investments. (PV of $1, FV of $1, PVA of $1, an factor(s) from the tables provided.) (Negative net present valu minus sign. Do not round intermediate calculations. Round you

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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**Santana Rey Equipment Investment Evaluation** Santana Rey is considering purchasing equipment for Business Solutions to expand into the computer furniture market. The equipment costs $366,240, has no salvage value, and a lifespan of six years. It is expected to generate an annual income of $15,039 with a cash flow of $76,836 each year. Santana requires an 8% return on investments. Calculations should use the present value factors (PV of $1, FV of $1, PVA of $1, and FVA of $1) provided in the tables. Negative net present values should be marked with a minus sign. All present value factors are to be rounded to four decimals, and final answers should be expressed as whole numbers. **Required Calculations:** 1-a. **Payback Period:** Determine how long it will take to recover the initial cost of the equipment. 1-b. **Net Present Value (NPV):** Calculate the NPV of the equipment to determine its profitability. 1-c. **Internal Rate of Return (IRR):** Compute the IRR to assess the expected profitability of the investment. 2. **Investment Decision Based on Payback Period:** Decide if the investment is prudent if Santana requires a payback period of four years or less. 3. **Investment Decision Based on IRR:** Determine if the investment meets Santana’s requirement for an internal rate of return of at least 8%. **Instructions for Completion:** - Use the tabs (Req 1A, Req 1B, Req 1C, Req 2 and 3) to input and calculate each requirement. - For the payback period calculation, enter relevant numerators and denominators in the provided grid. - Move through the requirements by selecting the appropriate tabs. This analysis will help Santana make an informed decision regarding investing in the new equipment.
Transcribed Image Text:**Santana Rey Equipment Investment Evaluation** Santana Rey is considering purchasing equipment for Business Solutions to expand into the computer furniture market. The equipment costs $366,240, has no salvage value, and a lifespan of six years. It is expected to generate an annual income of $15,039 with a cash flow of $76,836 each year. Santana requires an 8% return on investments. Calculations should use the present value factors (PV of $1, FV of $1, PVA of $1, and FVA of $1) provided in the tables. Negative net present values should be marked with a minus sign. All present value factors are to be rounded to four decimals, and final answers should be expressed as whole numbers. **Required Calculations:** 1-a. **Payback Period:** Determine how long it will take to recover the initial cost of the equipment. 1-b. **Net Present Value (NPV):** Calculate the NPV of the equipment to determine its profitability. 1-c. **Internal Rate of Return (IRR):** Compute the IRR to assess the expected profitability of the investment. 2. **Investment Decision Based on Payback Period:** Decide if the investment is prudent if Santana requires a payback period of four years or less. 3. **Investment Decision Based on IRR:** Determine if the investment meets Santana’s requirement for an internal rate of return of at least 8%. **Instructions for Completion:** - Use the tabs (Req 1A, Req 1B, Req 1C, Req 2 and 3) to input and calculate each requirement. - For the payback period calculation, enter relevant numerators and denominators in the provided grid. - Move through the requirements by selecting the appropriate tabs. This analysis will help Santana make an informed decision regarding investing in the new equipment.
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