1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Anna35 [415]
3 years ago
7

Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a u

seful 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 and cash inflows are expected to be $25,000 and $65,000 respectively. Yappy Company requires a 10% return on all new investments.
Compute each of the following:
1. Payback period
2. Net present value
3. Profitability index
4. internal rate of return
5. Accounting rate of return
Indicate whether the investment should be accepted or rejected.
Business
1 answer:
Eddi Din [679]3 years ago
7 0

Answer:

a. 4.92 years

b. NPV = $26,770.20

c. 1.0837

d. IRR = 12.26%

e. 15.6%

the project should be accepted

Explanation:

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Payback period =  Amount invested / cash flow = $320,000  / $65,000 = 4.92 years

Net present value is the present value of after tax cash flows from an investment less the amount invested.    

Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested

NPV and IRR can be calculated using a financial calculator

Cash flow in year 0 = $-320,000

Cash flow each year from year 1 to 8 = $65,000

I = 10%

NPV = $26,770.20

IRR = 12.26%

profitability index = 1 + (NPV / Initial investment) = 1 + ($26,770.20 / $320,000 ) = 1.0837

The project should be accepted because the NPV and profitability index are positive. the IRR is greater than the discount rate. this means that the project is profitable. Accounting rate of return = Average net income / Average book value

Average book value = (cost of equipment - salvage value) / 2 = $320,000 / 2 = $160,000

$25,000 / $160,000 = 0.156 = 15.6%

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.  

You might be interested in
At the end of each of the past 14 years, Vanessa deposited $450 in an account that earned 8 percent compounded annually. (a) How
Travka [436]

Answer:

a) = $10,896.71

b) = $11,768.45

Explanation:

The question is divided into 2 parts

Part a) Amount in the account today

The formula to use is as follows:

FV of Annuity= P(1+r)∧n - 1)/r

P= Periodic Payment = $450

r= Rate of each period= 8%

n= the number of periods= 14

The account today is as follows:

FV = 450 x (1+0.08)∧14-1]/0.08

= $10,896.71

Part b) The formula to use is as follows:

FV = Future value = (1+r) * P * [ (1+r)n -1] / r

P= Periodic Payment = $450

r= Rate of each period= 8%

n= the number of periods= 14

= Fv= (1+0.08) * 450 * [ (1+0.08)^14 - 1] / 0.08

= $11,768.45

3 0
3 years ago
The balance sheet reports the A. financial position for a specific period. B. financial position on a specific date. C. results
Morgarella [4.7K]

Answer: A

Explanation:

Balance sheet report the financial position for a specific period

4 0
3 years ago
What role does business cycles play in a market economy?
Elenna [48]

the first role in econamy

8 0
3 years ago
People who are especially susceptible to compassion fatigue have a high capacity for which of the following emotions?
Yakvenalex [24]
Your answer would be D.Sadness. 
6 0
3 years ago
Read 2 more answers
If the domestic interest rate in a small open economy with perfect capital mobility is higher than the world interest rate, then
Karolina [17]

Answer: capital inflow

Explanation:

Capital flows is the movement of money for investment purpose, trade or business production, and it includes the flow of capital in corporations in the form of investment capital and capital spending on research development and operations.

On a larger scale, the government directs capital flows from tax into operations and programs and through trade with other countries and currencies. When the domestic interest rate in an open economy which is small with perfect capital mobility is greater than the world interest rate, the domestic interest rate would be driven back to the world interest level by the capital inflow.

6 0
3 years ago
Other questions:
  • When your music teacher asks that you increase the decibels in a particular part of your performance, he is specifically request
    10·1 answer
  • Alexander has found that both commercial and residential real estate buyers respond positively to his marketing communication me
    5·1 answer
  • A grapefruit farmer in central Florida is trying to decide whether to take protective action to limit damage to his crop in the
    11·1 answer
  • "When a parent uses the partial equity method throughout the year to account for its investment in an acquired subsidiary, which
    13·1 answer
  • Galaxy Products is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under P
    15·1 answer
  • Heavy dream is best. <br><br> agree <br> or <br> no agree
    11·2 answers
  • In a SWOT analysis, what are strengths?
    10·1 answer
  • Bankruptcy can make it difficult for you to get a loan, rent an apartment, or even get a job. True or false?
    14·1 answer
  • On June 30, Nance Company receives a $5,000, 90-day, 4% note from a customer as payment on her account. How much interest will b
    12·1 answer
  • There are three elements that can vary in multimedia project estimates: time, money and people
    14·2 answers
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!