value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses $1,300,000 1,300,000 1,300,000 1,300,000 1,300,000 1 2 3 4 5 $1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 Required: Compute the payback period for the NC equipment. Round your answer to one decimal place. Payback period = years
value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses $1,300,000 1,300,000 1,300,000 1,300,000 1,300,000 1 2 3 4 5 $1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 Required: Compute the payback period for the NC equipment. Round your answer to one decimal place. Payback period = years
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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Transcribed Image Text:Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return
Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for
manufacturers of trenching machines. The outlay required is $800,000. The NC equipment will last five years with no expected salvage
value. The expected after-tax cash flows associated with the project follow:
Year Cash Revenues Cash Expenses
1
2
3
4
5
$1,600,000
1,600,000
1,600,000
1,600,000
1,600,000
$1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
Required:
Compute the payback period for the NC equipment. Round your answer to one decimal place.
Payback period =
years
Transcribed Image Text:Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return
Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for
manufacturers of trenching machines. The outlay required is $800,000. The NC equipment will last five years with no expected salvage
value. The expected after-tax cash flows associated with the project follow:
Year Cash Revenues Cash Expenses
1
2
3
4
5
$1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
$1,016,000
1,016,000
1,016,000
1,016,000
1,016,000
Required:
Compute the NC equipment's ARR. Enter as a percent and round your answer to one decimal place.
Accounting rate of return =
%
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Step 1: Payback period definition:
VIEWStep 2: Computation of the Annual cash inflows:
VIEWStep 3: Computation of the payback period:
VIEWStep 4: Accounting rate of return definition:
VIEWStep 5: Computation of the depreciation expense:
VIEWStep 6: Compuation of the average net income:
VIEWStep 7: Computation of the average investment:
VIEWStep 8: Computation of the accounting rate of return:
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