Pack & carry is debating whether to invest in new equipment to manufacture a line of high-quality
Question:
Pack & carry is debating whether to invest in new equipment to manufacture a line of high-quality luggage. The new equipment would cost $1,728,125, with an estimated five-year life and no salvage value. The estimated annual operating results with the new equipment are as follows:
Revenue from sales of new luggage = $800,000.00
Expenses other than depreciation = $306,250.00
Depreciation (straight-line basis) = $345,625.00…..$651,875.00
Increase in net income from the new line = $148,125.00
All revenue from the new luggage line and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. You are to compute the following for the investment in the new equipment to produce the new luggage line:
A. Annual cash flows.
B. Payback period.
C. Return on average investment.
D. Total present value of the expected future annual cash inflows, discounted at an annual rate of 10 percent.
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello