Question 1 Booth Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $960,000. The NC equipment will last 5 years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 $1,275,000 $900,000 2 1,475,000 1,015,000 3 1,650,000 1,200,000 4 1,358,000 1,118,000 5 1,550,000 1,225,000 Required: A. Compute the payback period for the NC equipment. B. Compute the NC equipment's ARR. C. Compute the investment's NPV, assuming a required rate of return of 10%. D. Compute the investment's IRR.

Question 1 Booth Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $960,000. The NC equipment will last 5 years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 $1,275,000 $900,000 2 1,475,000 1,015,000 3 1,650,000 1,200,000 4 1,358,000 1,118,000 5 1,550,000 1,225,000 Required: A. Compute the payback period for the NC equipment. B. Compute the NC equipment's ARR. C. Compute the investment's NPV, assuming a required rate of return of 10%. D. Compute the investment's IRR.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 12PROB

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