The details of an investment project are as follows: Cost of asset bought at the start of the project $80,000 Annual cash inflow (before tax) $25,000 Cost of capital, after tax 5% each year Life of the project 8 years Salvage value at the end of 8 years $2,500 Corporation tax is 25%. Writing down allowances of 20% of the purchase price will be claimed each year. (Assume the asset is bought on the first day of the tax year and that the company's other projects generate healthy profits.) Required: a. Payback Period b. Accounting Rate of Return c. Net Present Value d. IRR
The details of an investment project are as follows: Cost of asset bought at the start of the project $80,000 Annual cash inflow (before tax) $25,000 Cost of capital, after tax 5% each year Life of the project 8 years Salvage value at the end of 8 years $2,500 Corporation tax is 25%. Writing down allowances of 20% of the purchase price will be claimed each year. (Assume the asset is bought on the first day of the tax year and that the company's other projects generate healthy profits.) Required: a. Payback Period b. Accounting Rate of Return c. Net Present Value d. IRR
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
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Question
The details of an investment project are as follows:
|
Cost of asset bought at the start of the project |
$80,000 |
|
Annual |
$25,000 |
|
Cost of capital, after tax |
5% each year |
|
Life of the project |
8 years |
|
Salvage value at the end of 8 years |
$2,500 |
Corporation tax is 25%. Writing down allowances of 20% of the purchase price will be claimed each year.
(Assume the asset is bought on the first day of the tax year and that the company's other projects generate healthy profits.)
Required:
a. Payback Period
b. Accounting
c.
d.
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