Ellas Bakery plans to purchase a new oven for its store.The oven has an estimated useful life

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Ella’s Bakery plans to purchase a new oven for its store.The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Ella’s Bakery has a 14% after-tax required rate of return and a 35% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts.

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1. Calculate

(a) net present value,

(b) payback period, and

(c) internal rate of return.
2. Calculate accrual accounting rate of return based on net initial investment.

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Horngrens Cost Accounting A Managerial Emphasis

ISBN: 9781292211541

16th Global Edition

Authors: Srikant Datar, Madhav Rajan

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