Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $140,120 and will increase annual expenses by $66,000 including depreciation. The oil well will cost $427,000 and will have a $9,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to O decimal places, e.g. 13%.)

Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $140,120 and will increase annual expenses by $66,000 including depreciation. The oil well will cost $427,000 and will have a $9,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to O decimal places, e.g. 13%.)

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

Problem 1PS

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1. A start-up biotech company is considering making an investment of $100,000 in a newfiltration system. The associated estimates are summarized below: Annual receipts $75,000Annual expenses $45,000Useful life 8 yearsSalvage value $20,000 Straight line depreciation will be used, and the effective income tax rate is 20%. The After-tax MARR is 15% per year. Determine whether this investment is an attractive option for the company.
Harper Electronics is considering investing in manufacturing equipment expected to cost $250,000. The equipment has an estimated useful life of four years and a salvage value of $25,000. It is expected to produce incremental cash revenues of $125,000 per year. Harper has an effective income tax rate of 30 percent and a desired rate of return of 10 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 Harper 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 Harper 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 Harper uses straight-line depreciation. e. Determine the payback period and unadjusted…
aa
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