Sunland Company is considering a capital investment of $208,000 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $15.080 and $52,000, respectively. Sunland has a 12% cost of capital rate, which is the required rate of return on the investment. Click here to view PV table. (a) Compute the cash payback period. (Round answer to 1 decimal place.e.g. 10.5.) Cash payback period Compute the annual rate of return on the proposed capital expenditure (Round answer to 2 decimal places, e.g. 10.52%) Annual rate of return years (b) Using the discounted cash flow technique, compute the net present value. If the net present value is negative, use either a negative sign preceding the number eg-45 or porentheses eg. (45) Round answer for present value to O decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the foctor table provided)

Sunland Company is considering a capital investment of $208,000 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $15.080 and $52,000, respectively. Sunland has a 12% cost of capital rate, which is the required rate of return on the investment. Click here to view PV table. (a) Compute the cash payback period. (Round answer to 1 decimal place.e.g. 10.5.) Cash payback period Compute the annual rate of return on the proposed capital expenditure (Round answer to 2 decimal places, e.g. 10.52%) Annual rate of return years (b) Using the discounted cash flow technique, compute the net present value. If the net present value is negative, use either a negative sign preceding the number eg-45 or porentheses eg. (45) Round answer for present value to O decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the foctor table provided)

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Description: Sunland Company is considering a capital investment of $208,000 in additional productive facilities. The new machinery is expected tohave a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
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