Acme Ltd a scrap metal dealer, is considering the acquisition of a 'Roadrunner' metal compactor at...

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Acme Ltd a scrap metal dealer, is considering the acquisition of a 'Roadrunner' metal compactor at the cost of $25,000. The compactor is estimated to have zero value at the end of its five-year life. It will return the following annual net cash flows. Year (a) (b) (c) (d) 12345 10,000 12,000 15,000 5 7,000 Depreciation is $5,000 per annum and the company tax rate is 40%. Compute the project's payback period. If Acme's maximum payback period is three years, should the project be adopted? Compute the project's accounting rate of return, using the initial outlay. If Acme's target accounting rate of return is 25%, should the project be adopted? Compute the project's NPV. If the project's after-tax required rate of return is 10% per annum, should the project be adopted? Compare and discuss your solutions to (a), (b) and (c). 3 Net cash flow ($) 6,000 4 Acme Ltd a scrap metal dealer, is considering the acquisition of a 'Roadrunner' metal compactor at the cost of $25,000. The compactor is estimated to have zero value at the end of its five-year life. It will return the following annual net cash flows. Year (a) (b) (c) (d) 12345 10,000 12,000 15,000 5 7,000 Depreciation is $5,000 per annum and the company tax rate is 40%. Compute the project's payback period. If Acme's maximum payback period is three years, should the project be adopted? Compute the project's accounting rate of return, using the initial outlay. If Acme's target accounting rate of return is 25%, should the project be adopted? Compute the project's NPV. If the project's after-tax required rate of return is 10% per annum, should the project be adopted? Compare and discuss your solutions to (a), (b) and (c). 3 Net cash flow ($) 6,000 4

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To solve the given problem lets calculate the payback period accounting rate of return and net present value NPV of the project a Payback period The p... View the full answer