a. Compute the accounting rate of return, rounded to 2 decimal places
b. Compute the cash flow generated per year for years 1-5.
c. Compute the weighted average cost of capital.
d. How many years will it take for the project to “pay for itself.” Round to 2 decimal places.

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Ferris Company is considering investing in new equipments that would cost $80,000 and have a 5-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are as follows: Increased Revenue Increased Expenses Salary of additional operator Supplies Depreciation Maintenance Increased Income (Pre-tax) Taxes (40%) Increased Operating Income 10,000 9,000 16,000 3.600 $63,000 38.600 24,400 9.760 14,640 The company has a debt to equity ratio of 300% ($3 of debt for every $1 of equity). The pre-tax cost of debt is 10% and the cost of equity is 18%, Ferris Company is considering investing in new equipments that would cost $80,000 and have a 5-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are as follows: Increased Revenue Increased Expenses Salary of additional operator Supplies Depreciation Maintenance Increased Income (Pre-tax) Taxes (40%) Increased Operating Income 10,000 9,000 16,000 3.600 $63,000 38.600 24,400 9.760 14,640 The company has a debt to equity ratio of 300% ($3 of debt for every $1 of equity). The pre-tax cost of debt is 10% and the cost of equity is 18%,

Answer rating: 100% (QA)

A Accounting rate of return Year 1 63000 38600 ... View the full answer