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Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $399,360 and to have a six-year life and no salvage value. The equipment is expected to generate income of $16,239 and net cash flow of $83,785 in each year of its six-year life. Santana requires an 8% return on all investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) (Negative net present values should be indicated with a minus sign. Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole number.) Required: 1-a. Compute the payback period for this equipment. 1-b. Compute the net present value for this equipment. 1-c. Compute internal rate of return for this equipment. 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment?

Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $399,360 and to have a six-year life and no salvage value. The equipment is expected to generate income of $16,239 and net cash flow of $83,785 in each year of its six-year life. Santana requires an 8% return on all investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) (Negative net present values should be indicated with a minus sign. Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole number.) Required: 1-a. Compute the payback period for this equipment. 1-b. Compute the net present value for this equipment. 1-c. Compute internal rate of return for this equipment. 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment?

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 is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $399,360 and to have a six-year life and no salvage value. The equipment is expected to generate income of $16,239 and net cash flow of $83,785 in each year of its six-year life. Santana requires an 8% return on all investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) (Negative net present values should be indicated with a minus sign. Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole number.) Required: 1-a. Compute the payback period for this equipment. 1-b. Compute the net present value for this equipment. 1-c. Compute internal rate of return for this equipment. 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment? Complete this question by entering your answers in the tabs below. Req 1A Initial investment $ Req 1B Compute the payback period for this equipment. Numerator: Req 1A Show Transcribed Text Req 1C Years 1-6 Initial investment Net present value Req 1B I Req 2 and 3 Payback Period 399,360 $ /Annual net cash flow Denominator: < Req 1A Complete this question by entering your answers in the tabs below. $ Req 1C Req 2 and 3 Compute the net present value for this equipment. (Negative values must be entered as a negative number.) Net Cash Flows Present Value of Annuity at 8% Present Value of Net Cash Flows X = 83,785 = 83,785 x Payback period 4.77 years < Req 1A Req 1B > = = $ $ Req 1C > 0 399,360 25,676
Transcribed Image Text:Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $399,360 and to have a six-year life and no salvage value. The equipment is expected to generate income of $16,239 and net cash flow of $83,785 in each year of its six-year life. Santana requires an 8% return on all investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) (Negative net present values should be indicated with a minus sign. Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole number.) Required: 1-a. Compute the payback period for this equipment. 1-b. Compute the net present value for this equipment. 1-c. Compute internal rate of return for this equipment. 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment? Complete this question by entering your answers in the tabs below. Req 1A Initial investment $ Req 1B Compute the payback period for this equipment. Numerator: Req 1A Show Transcribed Text Req 1C Years 1-6 Initial investment Net present value Req 1B I Req 2 and 3 Payback Period 399,360 $ /Annual net cash flow Denominator: < Req 1A Complete this question by entering your answers in the tabs below. $ Req 1C Req 2 and 3 Compute the net present value for this equipment. (Negative values must be entered as a negative number.) Net Cash Flows Present Value of Annuity at 8% Present Value of Net Cash Flows X = 83,785 = 83,785 x Payback period 4.77 years < Req 1A Req 1B > = = $ $ Req 1C > 0 399,360 25,676
Complete this question by entering your answers in the tabs below. Req 1A Req 1B Numerator: Compute internal rate of return for this equipment. Show Transcribed Text Req 1C Present Value Factor 1 Denominator: Initial investment 1 399,360 1 Annual net cash flow S $ 83,785 = Find this factor on the appropriate table to estimate the Internal Rate of Return Periods (p) = Internal Rate of Return Req 1A Req 2 and 3 10 % Req 1B Ĵ < Req 1B s Present Value Factor 4.7665 Complete this question by entering your answers in the tabs below. Req 2 and 3> Req 1C Req 2 and 3 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment? 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment? < Req 1C Req 2 and 3> Do not invest Do not invest
Transcribed Image Text:Complete this question by entering your answers in the tabs below. Req 1A Req 1B Numerator: Compute internal rate of return for this equipment. Show Transcribed Text Req 1C Present Value Factor 1 Denominator: Initial investment 1 399,360 1 Annual net cash flow S $ 83,785 = Find this factor on the appropriate table to estimate the Internal Rate of Return Periods (p) = Internal Rate of Return Req 1A Req 2 and 3 10 % Req 1B Ĵ < Req 1B s Present Value Factor 4.7665 Complete this question by entering your answers in the tabs below. Req 2 and 3> Req 1C Req 2 and 3 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment? 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment? < Req 1C Req 2 and 3> Do not invest Do not invest
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