Rooney Electronics is considering investing in manufacturing equipment expected to cost $330,000. The equipment has an estimated useful life of four years and a salvage value of $ 20,000. It is expected to produce incremental cash revenues of $165,000 per year. Rooney has an effective income tax rate of 30 percent and a desired rate of return of 14 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Determine the net present value and the present value index of the investment, assuming that Rooney uses straight-line depreciation for financial and income tax reporting. b. Determine the net present value and the present value index of the investment, assuming that Rooney uses double-declining- balance depreciation for financial and income tax reporting. d. Determine the payback period and unadjusted rate of return (use average investment), assuming that Rooney uses straight-line depreciation.
Rooney Electronics is considering investing in manufacturing equipment expected to cost $330,000. The equipment has an estimated useful life of four years and a salvage value of $ 20,000. It is expected to produce incremental cash revenues of $165,000 per year. Rooney has an effective income tax rate of 30 percent and a desired rate of return of 14 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Determine the net present value and the present value index of the investment, assuming that Rooney uses straight-line depreciation for financial and income tax reporting. b. Determine the net present value and the present value index of the investment, assuming that Rooney uses double-declining- balance depreciation for financial and income tax reporting. d. Determine the payback period and unadjusted rate of return (use average investment), assuming that Rooney uses straight-line depreciation.
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 5MAD: Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to...
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