Metro Car Washes, Inc., is reviewing an investment proposal. The initial cost as well as the...

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Metro Car Washes, Inc., is reviewing an investment proposal. The initial cost as well as the estimate of the book value of the investment at the end of each year, the net after-tax cash flows for each year, and the net income for each year are presented in the following schedule. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Initial Cost Annual Net After-Tax Annual Year and Book Value $135,000 90,000 54,000 27,000 9,000 Cash Flows Net Income $64,000 57,000 50,000 43,000 36,000 $19,e00 21,000 23,000 25,000 27,000 1 Management uses a 12 percent after-tax target rate of return for new investment proposals. Use Arrendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the project's payback period. Assume that the cash flows in years 1 through 5 occur uniformly throughout each year. 2. Calculate the accounting rate of return on the investment proposal. Base your calculation on the initial cost of the investment Metro Car Washes, Inc., is reviewing an investment proposal. The initial cost as well as the estimate of the book value of the investment at the end of each year, the net after-tax cash flows for each year, and the net income for each year are presented in the following schedule. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Initial Cost Annual Net After-Tax Annual Year and Book Value $135,000 90,000 54,000 27,000 9,000 Cash Flows Net Income $64,000 57,000 50,000 43,000 36,000 $19,e00 21,000 23,000 25,000 27,000 1 Management uses a 12 percent after-tax target rate of return for new investment proposals. Use Arrendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the project's payback period. Assume that the cash flows in years 1 through 5 occur uniformly throughout each year. 2. Calculate the accounting rate of return on the investment proposal. Base your calculation on the initial cost of the investment

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Solution Req 1 Projects Payback period228 years ... View the full answer