Pratt and Sullivan Services is planning a new business venture. With $125,000 of available funds to invest,
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The second option is to operate a printing shop in an office complex. This option would require the company to spend $100,000 for printing equipment that has a useful life of four years with a zero salvage value. The cash revenue is expected to be $106,250 per year and cash expenses are expected to be $58,750 per year. The firm uses the straight-line method of depreciation. Its effective income tax rate is expected to be 25 percent.
Required
Round computations to two decimal points.
a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative.
b. Indicate which investment alternative you would recommend. Explain your choice.
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
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Related Book For
Fundamental Managerial Accounting Concepts
ISBN: 978-1259569197
8th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds
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