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Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year municipal contract. The equipment costs $196,000 and would have no salvage value when the contract expires at the end of four years. Estimated annual operating results of the project are as follows: Revenue from contract sales $ 301,000 Expenses other than depreciation Depreciation (straight-line basis) $ 203,000 49,000 Increase in net income from contract work 252,000 $ 49,000 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Winett's proposal to undertake this contract: Required: a. Payback period. b. Return on average investment. Note: Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3). c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 8 percent. (Refer to the annuity table in Exhibit 26-4.) Note: Round your "PV factors" to 3 decimal places. a. Payback period b. Return on average investment c. Net present value years %

Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year municipal contract. The equipment costs $196,000 and would have no salvage value when the contract expires at the end of four years. Estimated annual operating results of the project are as follows: Revenue from contract sales $ 301,000 Expenses other than depreciation Depreciation (straight-line basis) $ 203,000 49,000 Increase in net income from contract work 252,000 $ 49,000 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Winett's proposal to undertake this contract: Required: a. Payback period. b. Return on average investment. Note: Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3). c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 8 percent. (Refer to the annuity table in Exhibit 26-4.) Note: Round your "PV factors" to 3 decimal places. a. Payback period b. Return on average investment c. Net present value years %

Essentials Of Investments
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
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Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year municipal contract. The equipment costs $196,000 and would have no salvage value when the contract expires at the end of four years. Estimated annual operating results of the project are as follows: Revenue from contract sales $ 301,000 Expenses other than depreciation Depreciation (straight-line basis) $ 203,000 49,000 252,000 Increase in net income from contract work $ 49,000 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Winett's proposal to undertake this contract: Required: a. Payback period. b. Return on average investment. Note: Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3). c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 8 percent. (Refer to the annuity table in Exhibit 26-4.) Note: Round your "PV factors" to 3 decimal places. a. Payback period b. Return on average investment c. Net present value years %
Transcribed Image Text:Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year municipal contract. The equipment costs $196,000 and would have no salvage value when the contract expires at the end of four years. Estimated annual operating results of the project are as follows: Revenue from contract sales $ 301,000 Expenses other than depreciation Depreciation (straight-line basis) $ 203,000 49,000 252,000 Increase in net income from contract work $ 49,000 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Winett's proposal to undertake this contract: Required: a. Payback period. b. Return on average investment. Note: Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3). c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 8 percent. (Refer to the annuity table in Exhibit 26-4.) Note: Round your "PV factors" to 3 decimal places. a. Payback period b. Return on average investment c. Net present value years %
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