CarCare Garage Company is considering an investment in a new tune-up computer. The cost of the computer
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CarCare Garage Company is considering an investment in a new tune-up computer. The cost of the computer is $24,000. A cost analyst has calculated the discounted present value of the expected cash flows from the computer to be $26,220, based on the firm’s cost of capital of 20%.
Required:
a. What is the expected return on investment of the machine, relative to 20%? Explain your answer.
b. The payback period of the investment in the machine is expected to be 4.6 years. How much weight should this measurement carry in the decision about whether or not to invest in the machine? Explain your answer.
Cost Of CapitalCost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... 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
Accounting What the Numbers Mean
ISBN: 978-1260565492
12th edition
Authors: David Marshall, Wayne McManus, Daniel Viele
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