Techno Lab, a taxpaying entity, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $135,000. No terminal disposal value is expected. Techno Labs' required rate of return is 10%. Assume all cash flows occur at year-end except for initial investment amounts. Techno Labs uses straight-line depreciation. The income tax rate is 34% for all transactions that affect income taxes. . Requirement 1. Calculate the following for the special-purpose eye-testing machine: Net present value (NPR) (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) 1. Calculate the following for the special-purpose eye-testing machine: a. Net present value b. Payback period c. Internal rate of return d. Accrual accounting rate of return based on net initial investment e. Accrual accounting rate of return based on average investment 2. How would your computations in requirement 1 be affected if the special-purpose machine had a $14,000terminal disposal value at the end of 10 years? Assume depreciation deductions are based on the$135,000 purchase cost and zero terminal disposal value using the straight-line method. Answer briefly in words without further calculations
Techno Lab, a taxpaying entity, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $135,000. No terminal disposal value is expected. Techno Labs' required rate of return is 10%. Assume all cash flows occur at year-end except for initial investment amounts. Techno Labs uses straight-line depreciation. The income tax rate is 34% for all transactions that affect income taxes. . Requirement 1. Calculate the following for the special-purpose eye-testing machine: Net present value (NPR) (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) 1. Calculate the following for the special-purpose eye-testing machine: a. Net present value b. Payback period c. Internal rate of return d. Accrual accounting rate of return based on net initial investment e. Accrual accounting rate of return based on average investment 2. How would your computations in requirement 1 be affected if the special-purpose machine had a $14,000terminal disposal value at the end of 10 years? Assume depreciation deductions are based on the$135,000 purchase cost and zero terminal disposal value using the straight-line method. Answer briefly in words without further calculations
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
Techno Lab, a taxpaying entity, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $135,000.
No terminal disposal value is expected. Techno Labs' required
Assume all cash flows occur at year-end except for initial investment amounts.
Techno Labs uses straight-line
.
Requirement 1. Calculate the following for the special-purpose eye-testing machine:
Net present value (NPR) (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.)
|
1.
|
Calculate the following for the special-purpose eye-testing machine:
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|
|
|
a.
|
Net present value
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|
|
b.
|
Payback period
|
|
|
c.
|
|
|
|
d.
|
Accrual accounting rate of return based on net initial investment
|
|
|
e.
|
Accrual accounting rate of return based on average investment
|
|
2.
|
How would your computations in requirement 1 be affected if the special-purpose machine had a $14,000terminal disposal value at the end of 10 years? Assume depreciation deductions are based on the$135,000 purchase cost and zero terminal disposal value using the straight-line method. Answer briefly in words without further calculations |
Transcribed Image Text:Reference
Present Value of $1
Periods
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
40%
Periods
0.806
0.650
0.943
0.000
0.862
0.743
Period 1 0.980
0.962
0.926
0.893
0.877
0.847
0.833
0.820
0.794
0.781
0.769
0.758
0.714
Period 1
Period 2 0.961
0.025
0.890
0.857
0.826
0.707
0.780
0.718
0.604
0.672
0.630
0.610
0.592
0.574
0.510
Period 2
Period 3 0.942
0.889
0.840
0.794
0.751
0.712
0.675
0.641
0.600
0.579
0.551
0.524
0.500
0.477
Period 3
0.455
0.350
0.435
0.364
Period 4 0.924
0.855
0.792
0.735
0.683
0.636
0.592
0.552
0.516
0.482
0.451
0.423
0.307
0.373
0.329
0.260
Period 4
Period 5 0.906
0.822
0.747
0.681
0.621
0.567
0.519
0.476
0.437
0.402
0.370
0.341
0.315
0.291
0.200
0.250
0.180
0.143
0.186
Period 5
0.335
0.279
0.790
0.705
0.665
Period 6 0.888
0.630
0.584
0.507
0.458
0.410
0.370
0.303
0.275
0.207
0.133
0.250
0.198
0.227
Period 6
Period 7 0.871
0.760
0.583
0.513
0.452
0.400
0.354
0.314
0.249
0.222
0.178
0.159
0.095
Period 7
Period 8 0.853
0.731
0.627
0.540
0.487
0.404
0.351
0.305
0.266
0.233
0.204
0.179
0.123
0.088
0.157
0.125
0.139
0.108
Period 8
Period 9 0.837
0.703
0.592
0.500
0.424
0.361
0.308
0.263
0.225
0.194
0.187
0.144
0.108
0.094
0.082
0.048
Period 9
Period 10 0.820
0.676
0.558
0.463
0.386
0.322
0.270
0.227
0.191
0.162
0.137
0.116
0.099
0.085
0.073
0.062
0.035 Period 10
Period 11 0.804
0.650
0.527
0.429
0.350 0.287
0.237 0.195
0.16:
0.135 0.112
0.094 0.079
0.066 0.056
0.047
0.025 Period 11
Period 12 0.788
0.625
0.497
0.307
0.319 0.257 0.208
0.168
0.137
0.112 0.092 0.078 0.062 0.052 0.043
0.036
0.018 Period 12
Period 13 0.773
0.601
0.469
0.368
0.290
0.229
0.182
0.116
0.050
0.027
0.145
0.125
0.093
0.075
0.081
0.040 0.033
0.013 Period 13
Period 14 0.758
0.577
0.442
0.340
0.263
0.205
0.180
0.090
0.078
0.082
0.049 0.039
0.032 0.025
0.021
0.009 Period 14
Period 15 0.743
0.239
0.051
0.040
0.555
0.534
0.417
0.315
0.183
0.140
0.108
0.084
0.005
0.031
0.025
0.020
0.019 0.015
0.018
0.008 Period 15
Period 16 0.728
0.394
0.202
0.218
0.163
0.123
0.093
0.071
0.054
0.042
0.032 0.025
0.012 0.005 Period 16
0.026 0.020 0.015 0.012 0.009 0.003 Period 17
0.021
Period 17 0.714
0.513
0.371
0.270
0.198
0.146
0.108
0.080
0.080
0.051
0.045 0.034
Period 18 0.700
0.494
0.350
0.250
0.180
0.130
0.095
0.060
0.016
0.038
0.031 0.023
0.028
0.012 0.009
0.007
0.002 Period 18
Period 19 0.686
0.475
0.080
0.000
0.331
0.312
0.232
0.164
0.116
0.083
0.043
0.017
0.012
0.007
0.005
0.002 Period 19
Period 20 0.673
0.458
0.215
0.149
0.104
0.073
0.051
0.037
0.020
0.019
0.014
0.010
0.007
0.005
0.004
0.001 Period 20
0.294 0.199
0.044
0.038
Period 21 0.680 0.430
0.135
0.093
0.084
0.031
0.022 0.015
0.011
0.008
0.006
0.004
0.003
0.001 Period 21
0.000
0.007
Period 22 0.647
0.422
0.278
0.184
0.123 0.083 0.058
0.026 0.018 0.013
0.008
0.004 0.003
0.002
0.001 Period 22
Period 23 0.634
0.406
0.262
0.170
0.112
0.074
0.049
0.033
0.022
0.015 0.010
0.005
0.003 0.002
0.002
0.000 Period 23
Period 24 0.622
0.390
0.247
0.158
0.102 0.066
0.043
0.028
0.019
0.013
0.008
0.006
0.004
0.003 0.002
0.001
0.000 Period 24
Period 25 0.610
0.375
0.002
0.007
0.002
0.233
0.220
0.146
0.059
0.038
0.024
0.016
0.010
0.005
0.003
0.001
0.001
0.000 Period 25
Period 26 0.598
0.361
0.135
0.084 0.053
0.033
0.021
0.014
0.009
0.000
0.004 0.002
0.002 0.001
0.001
0.000 Period 26
Period 27 0.586
0.347
0.207
0.125
0.076 0.047
0.029
0.018
0.011
0.007
0.005
0.003 0.002 0.001 0.001
0.001
0.000 Period 27
Period 28 0.574
0.333
0.196
0.118
0.089 0.042
0.026
0.016
0.010
0.008
0.004
0.002
0.002
0.001
0.001
0.000
0.000 Period 28
Period 29 0.563
0.321
0.185
0.107
0.063 0.037
0.022
0.014
0.008
0.005
0.003
0.002
0.001
0.001
0.000
0.000
0.000
Period 29
Period 30 0.552
0.308
0.174
0.099
0.057
0.036
0.033
0.020
0.012
0.007
0.004
0.003
0.002
0.001
0.001
0.000
0.000
0.000 Period 30
Period 35 0.500
0.253
0.130
0.068
0.019
0.010
0.008
0.003
0.002
0.001
0.001
0.000
0.000
0.000
0.000
0.000 Period 35
Period 40 0.453
0.208
0.097
0.046
0.022
0.011
0.005
0.003
0.001
0.001
0.000
0.000
0.000
0.000
0.000
0.000
0.000 Period 40
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Transcribed Image Text:Reference
Present Value of Annuity of $1.00 in Arrears*
4%
Periods
2%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
40%
Periods
Period 1
0.980
0.962
0.043
0.926
0.909
0.893
0.877
0.862
0.847
0.833
0.820
0.808
0.794
0.781
0.769
0.758
0.714
Period 1
Period 2
1.942
1.886
1.833
1.783
1.736
1.690
1.647
1.605
1.566
1.528
1.492
1.457
1.424
1.392
1.361
1.331
1.224
Period 2
Period 3 2.884
2.775
2.673
2.577
2.487
2.402
2.322
2.246
2.174
2.106
2.042
1.981
1.923
1.868
1.816
1.766
1.589
Period 3
Period 4 3.808
3.630
3.465
3.312
3.170
3.037
2.014
2.798
2.690
2.580
2.494
2.404
2.320
2.241
2.166
2.096
1.849
Period 4
Period 5 4.713
4.452
4.212
3.903
3.791
3.605
3.433
3.274
3.127
2.991
3.328
2.864
2.745
2.635
2.532
2.436
2.345
2.035
Period 5
Period 6 5.601
5.242
4.917
4.623
4.355
4.111
3.889
3.685
3.498
3.187
3.020
2.885
2.759
2.643
2.534
2.188
Period 6
Period 7
6.472
6.002
5.582
5.208
4.868
4.504
4.288
4.039
3.812
3.605
3.416
3.242
3.083
2.937
2.802
2.677
2.283
Period 7
Period 8 7.325
6.733
6.210
5.747
5.335
4.98
4.630
4.344
4.078
3.837
3.619
3.421
3.241
3.076
2.925
2.786
2.331
Period 8
Period 9
8.162
7.435
6.802
6.247
5.759
5.328
4.940
4.607
4.303
4.031
3.786
3.566
3.366
3.184
3.019
2.868
2.379
Period 9
7.360
5.210
4.833
3.465
3.543
Period 10 8.983
8.111
6.710
6.145
5.650
4.494
4.192
3.923
3.682
3.269
3.092
2.930
2.414 Period 10
Period 11 9.787
8.760
7.887
7.139
6.495
5.038
5.453
5.020
4.856
4.327
4.035
3.776
3.335
3.147
2.978
2.438 Period 11
Period 12 10.575
9.385
8.384
7.536
6.814
6.194
5.660
5.197
4.793
4.439
4.127
3.851
3.606
3.387
3.190
3.013
2.456 Period 12
Period 13 11.348
9.086
8.853
7.904
7.103
6.424
5.842
5.342
4.910
4.533
4.203
3.912
3.656
3.427
3.223
3.040
2.469 Period 13
Period 14 12.106 10.563
9.295
8.244
7.367
6.628
6.002
5.468
5.008
4.611
4.265
3.962
3.695
3.459
3.249
3.061
2.478 Period 14
Period 15 12.840
11.118
9.712
8.559
7.806
6.811
6.142
5.575
5.092
4.675
4.315
4.001
3.726
3.483
3.268
3.076
2.484 Period 15
Period 16 13.578 11.652
10.106
8.851
7.824
6.974
6.265
5.668
5.162
4.730
4.357
4.033
3.751
3.503
3.283
3.088
2.489 Period 16
Period 17 14.292 12.186
10.477
9.122
8.022
7.120
6.373
5.749
5.222
4.775
4.391
4.059
3.771
3.518
3.295
3.097
2.492 Period 17
Period 18 14.992 12.659
10.828
9.372
8.201
7.250
6.487
5.818
5.273
4.812
4.843
4.419
4.080
3.786
3.529
3.304
3.104
2.494 Period 18
Period 19 15.678 13.134
11.158
9.604
8.365
7.366
6.550
5.877
5.316
4.442
4.097
3.799
3.539
3.311
3.109
2.496 Period 19
7.480
4.870
4.460
4.476
4.488
Period 20 18.351 13.590
11.470
9.818
8.514
6.623
5.929
5.353
4.110
3.808
3.546
3.316
3.113
2.497 Period 20
Period 21 17.011
14.020
11.764
10.017
8.649
7.562
6.687
5.973
5.384
4.891
4.121
3.816
3.551
3.320
3.116
2.498 Period 21
Period 22 17.658 14.451
4.900
3.822
3.323
12.042
12.303
10.201
8.772
7.645
6.743
6.011
5.410
4.130
3.556
3.118
2.498 Period 22
Period 23 18.292
14.857
10.371
8.883
7.718
3.559
6.792
6.835
6.044
5.432
4.925
4.499
4.137
3.827
3.325
3.120
2.499 Period 23
10.529
4.937
4.948
Period 24 18.914 15.247
12.550
8.985
7.784
6.073
5.451
4.507
4.143
3.831
3.562
3.327
3.121
2.499 Period 24
Period 25 19.523 15.622
12.783
10.675
9.077
7.843
6.873
6.097
5.467
4.514
4.147
3.834
3.564
3.329
3.122
2.499 Period 25
Period 26 20.121 15.983
13.003
10.810
9.181
7.896
6.906
6.118
5.480
4.520
3.837
4.958
4.964
4.151
3.566
3.330
3.123
2.500 Period 26
Period 27 20.707 18.330
13.211
10.935
9.237
7.943
6.935
6.136
5.492
4.524
4.154
3.839
3.567
3.331
3.123
2.500 Period 27
13.406
6.061
4.970
4.975
Period 28 21.281
18.663
11.051
9.307
7.984
2.500 Period 28
6.152
6.168
6.177
5.502
5.510
4.528
4.157
3.840
3.568
3.331
3.124
Period 29 21.844 16.984
13.591
11.158
9.370
8.022
6.983
4.531
4.159
3.841
3.569
3.332
3.124
2.500 Period 29
Period 30 22.396 17.292
13.765
11.258
9.427
8.055
7.003
5.517
4.979
4.534
4.160
3.842
3.569
3.332
3.124
2.500 Period 30
Period 35 24.999 18.665
14.498
11.655
9.644
8.176
7.070
6.215
5.539
4.992
4.541
4.164
3.845
3.571
3.333
3.125
2.500 Period 35
Period 40 27.355 19.793
15.046
11.925
9.779
8.244
7.105
6.233
5.548
4.997
4.544
4.166
3.846
3.571
3.333
3.125
2.500 Period 40
* Payments (or receipts) at the end of each period.
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