Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year municipal contract. The equipment costs $291,000 and would have no salvage value when the contract expires at the end of fo years. Estimated annual operating results of the project are as follows. Revenue from contract sales Expenses other than depreciation Depreciation (straight-line basis) Increase in net income from contract work $211,000 72,750 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. a. Payback period b. Return on average investment c. Net present value $308,000 283,750 $ 24,250 a. Payback period. b. Return on average investment. (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 5 percent. (Refer to the annuity table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.) 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 $291,000 and would have no salvage value when the contract expires at the end of fo years. Estimated annual operating results of the project are as follows. Revenue from contract sales Expenses other than depreciation Depreciation (straight-line basis) Increase in net income from contract work $211,000 72,750 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. a. Payback period b. Return on average investment c. Net present value $308,000 283,750 $ 24,250 a. Payback period. b. Return on average investment. (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 5 percent. (Refer to the annuity table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.) years %
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 2P
Related questions
Question
![Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year
municipal contract. The equipment costs $291,000 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
Expenses other than depreciation
Depreciation (straight-line basis)
Increase in net income from contract work
$211,000
72,750
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.
a. Payback period
b. Return on average investment
c. Net present value
$308,000
283,750
$ 24,250
a. Payback period.
b. Return on average investment. (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 5 percent. (Refer to the annuity
table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.)
years
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5fca61a7-5ba6-4ee8-913f-3944636f5ce1%2Fc734b62c-4c98-4aa5-9243-746f1a094117%2Fw1t1j1h_processed.png&w=3840&q=75)
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 $291,000 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
Expenses other than depreciation
Depreciation (straight-line basis)
Increase in net income from contract work
$211,000
72,750
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.
a. Payback period
b. Return on average investment
c. Net present value
$308,000
283,750
$ 24,250
a. Payback period.
b. Return on average investment. (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 5 percent. (Refer to the annuity
table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.)
years
%
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning