Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Rahul

TB Problem 16-142 (Algo) Tanner Corporation is considering the acquisition of...
Tanner Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating
costs of $77,000 before income taxes. The machine costs $230,000, has a useful life of five years, and no salvage value. Tanner uses
straight-line depreciation on all assets, is subject to a 40% income tax rate, and has an after-tax hurdle rate of 10%.
Year
1
2
3
4
FV of $1 at FV of an ordinary annuity PV of $1 at PV of an ordinary annuity
at 10%
at 10%
10%
1.100
1.210
1.331
1.464
1.611
1.772
1.000
2.100
3.310
4.641
6.105
7.716
A. Rate of return
B. Net present value
10%
0.909
0.826
0.751
14,899
0.683
0.621
0.564
Answer is complete but not entirely correct.
86 %
0.909
1.736
Required:
A. Compute the machine's accounting rate of return on the initial investment.
B. Compute the machine's net present value.
Note: For all requirements, do not round intermediate calculations. Round final answers to whole number.
2.487
3.170
3.791
4.355
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Transcribed Image Text:TB Problem 16-142 (Algo) Tanner Corporation is considering the acquisition of... Tanner Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating costs of $77,000 before income taxes. The machine costs $230,000, has a useful life of five years, and no salvage value. Tanner uses straight-line depreciation on all assets, is subject to a 40% income tax rate, and has an after-tax hurdle rate of 10%. Year 1 2 3 4 FV of $1 at FV of an ordinary annuity PV of $1 at PV of an ordinary annuity at 10% at 10% 10% 1.100 1.210 1.331 1.464 1.611 1.772 1.000 2.100 3.310 4.641 6.105 7.716 A. Rate of return B. Net present value 10% 0.909 0.826 0.751 14,899 0.683 0.621 0.564 Answer is complete but not entirely correct. 86 % 0.909 1.736 Required: A. Compute the machine's accounting rate of return on the initial investment. B. Compute the machine's net present value. Note: For all requirements, do not round intermediate calculations. Round final answers to whole number. 2.487 3.170 3.791 4.355
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