Question

Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a useful life of 8 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income is expected to be 25,000 and cash inflows are expected to be $65,000. Yappy requires a 10% return on all new investments.

Instructions: Using each of the methods below, show ALL your work for calculating the answer. Round to 2 decimal points when necessary. Number your responses below to correspond with the order in the question.

1. Cash payback period

2. Net present value

3. Profitability index

4. Internal rate of return

5. Annual rate of return

6. Based on the information computed above, should the investment be accepted? Why or why not?

Answer #1

Vilas Company is considering a capital investment of $190,000 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
$12,000 and $50,000, respectively. Vilas has a 12% cost of capital
rate, which is the required rate of return on the investment.
Compute the cash payback...

Richol Corporation is considering an investment in new equipment
costing $180,000. The equipment will be depreciated on a
straight-line basis over a five-year life and is expected to
generate net cash inflows of $45,000 the first year, $65,000 the
second year, and $90,000 every year thereafter until the fifth
year. What is the payback period for this investment? The equipment
has no residual value.
2.37 years
2.00 years
2.78 years
4.00 years

Vaughn Company is considering a capital investment of $216,000
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 $18,468 and $45,000, respectively. Vaughn has a 12%
cost of capital rate, which is the required rate of return on the
investment.
Click here to view...

Vilas Company is considering a capital investment of $186,200 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
$17,689 and $49,000, respectively. Vilas has a 12% cost of capital
rate, which is the required rate of return on the investment.
Click here to view...

A company is considering purchasing factory equipment that costs
$320,000 and is estimated to have a $20,000 salvage value at the
end of its 6-year useful life. If the equipment is purchased,
annual revenues are expected to be $90,000 and annual operating
expenses including depreciation expense are expected to be $78,000.
The straight-line method of depreciation would be used. The cash
payback period (rounded) on the equipment is T
he cash payback period (rounded) on the equipment is 6.40 years...

Exercise 25-10 (Video)
Bramble Company is considering a capital investment of $185,500
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 $12,614 and $53,000, respectively. Bramble has a 12%
cost of capital rate, which is the required rate of return on the
investment.
Click...

Exercise 12-10 (Video) Vilas Company is considering a capital
investment of $197,600 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 $15,314 and $52,000, respectively. Vilas
has a 12% cost of capital rate, which is the required rate of
return on the investment. Click...

Genoa company is considering a new investment and the relevant
information is below. The equipment depreciates at a straight-line
basis over the project's three-year life, would have no salvage
value, and requires additional net operating working capital that
would be recovered at the end of the project's life. Revenues and
other operating costs are expected to be constant over the
project's life. cash flows are constnt for the life of the project.
What is the project's NPV?
WACC
9%
Net...

Sturgis Medical Clinic (SMC) in Sturgis, SD is considering
investing in new medical imaging equipment that would increase its
capacity to provide added services to treat patients. The machine
will have a 5 year expected life. The projected annual cash flows
related to this investment are as follows:
Investment in new medical equipment $ 450,000
Shipping cost for new equipment $ 20,000
Installation of new medical equipment 25,000
Travel and training for staff 65,000
Added customer accounts receivable fully Recovered...

Genoa Company is considering a new investment whose data are
shown below. The equipment would be depreciated on a straight-line
basis over the project's 3-year life, would have a zero salvage
value, and would require additional net operating working capital
that would be recovered at the end of the project's life. Revenues
and other operating costs are expected to be constant over the
project's life. What is the project's NPV? WACC 15.50% Net
investment in fixed assets (basis) $75,000 Required...

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