Flynn Corporation is debating whether to purchase a new computerized production system. The system will cost $450,000 and have an estimated 10-year life with a salvage value of $70,000. The estimated operating results from the new production system are as follows:
Incremental revenue.............................................................$180,000
Incremental expenses:
Expenses other than depreciation...................$85,000..............................
Depreciation (straight line basis).....................38,000................ ($123,000)
Incremental net income.............................................................$57,000
All revenue and expenses other than depreciation will be received and paid in cash. Compute the following for this proposal:
a) Annual net cash flow: $ _________
b) Payback period: ________ years
c) Return on average investment: _________%
d) Net present value, discounted at an annual rate of 6% (present value of $1 due in 10 years, discounted at 6%, is 0.558; present value of $1 received annually for 10 years, discounted at 6% is 7.360): $_____