Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year municipal contract. The equipment costs $291,000 and would have no salvage value when the contract expires at the end of fo years. Estimated annual operating results of the project are as follows. Revenue from contract sales Expenses other than depreciation Depreciation (straight-line basis) Increase in net income from contract work $211,000 72,750 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Winett's proposal to undertake this contract. a. Payback period b. Return on average investment c. Net present value $308,000 283,750 $ 24,250 a. Payback period. b. Return on average investment. (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3).) c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 5 percent. (Refer to the annuity table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.) years %
Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year municipal contract. The equipment costs $291,000 and would have no salvage value when the contract expires at the end of fo years. Estimated annual operating results of the project are as follows. Revenue from contract sales Expenses other than depreciation Depreciation (straight-line basis) Increase in net income from contract work $211,000 72,750 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Winett's proposal to undertake this contract. a. Payback period b. Return on average investment c. Net present value $308,000 283,750 $ 24,250 a. Payback period. b. Return on average investment. (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3).) c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 5 percent. (Refer to the annuity table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.) years %
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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Transcribed Image Text:Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year
municipal contract. The equipment costs $291,000 and would have no salvage value when the contract expires at the end of four
years. Estimated annual operating results of the project are as follows.
Revenue from contract sales
Expenses other than depreciation
Depreciation (straight-line basis)
Increase in net income from contract work
$211,000
72,750
All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for
accounting purposes. Compute the following for Winett's proposal to undertake this contract.
a. Payback period
b. Return on average investment
c. Net present value
$308,000
283,750
$ 24,250
a. Payback period.
b. Return on average investment. (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3).)
c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 5 percent. (Refer to the annuity
table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.)
years
%
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