Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return
Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for
manufacturers of trenching machines. The outlay required is $800,000. The NC equipment will last five years with no expected salvage
value. The expected after-tax cash flows associated with the project follow:
Year Cash Revenues Cash Expenses
1
2
3
4
5
$1,600,000
1,600,000
1,600,000
1,600,000
1,600,000
$1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
Required:
Compute the payback period for the NC equipment. Round your answer to one decimal place.
Payback period =
years
Transcribed Image Text:Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return
Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for
manufacturers of trenching machines. The outlay required is $800,000. The NC equipment will last five years with no expected salvage
value. The expected after-tax cash flows associated with the project follow:
Year Cash Revenues Cash Expenses
1
2
3
4
5
$1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
$1,016,000
1,016,000
1,016,000
1,016,000
1,016,000
Required:
Compute the NC equipment's ARR. Enter as a percent and round your answer to one decimal place.
Accounting rate of return =
%
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Step 1: Payback period definition:
VIEW Step 2: Computation of the Annual cash inflows:
VIEW Step 3: Computation of the payback period:
VIEW Step 4: Accounting rate of return definition:
VIEW Step 5: Computation of the depreciation expense:
VIEW Step 6: Compuation of the average net income:
VIEW Step 7: Computation of the average investment:
VIEW Step 8: Computation of the accounting rate of return:
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