Tablerock Corporation is interested in reviewing its method of evaluating capital expenditure proposals using the accounting rate
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Question:
Tablerock Corporation is interested in reviewing its method of evaluating capital expenditure proposals using the accounting rate of return method. A recent proposal involved a $ investment in a machine that had an estimated useful life of five years and an estimated salvage value of $ The machine was expected to increase net income and cash flows before depreciation expense by $ per year. The criteria for approving a new investment are that it have a rate of return of and a payback period of three years or less. Use Table
Note: Use appropriate factors from the tables provided. Round the PV factors to decimals.
Required:
Calculate the accounting rate of return on this investment for the first year. Assume straightline depreciation. Based on this analysis, would the investment be made?
Calculate the payback period for this investment. Based on this analysis, would the investment be made?
Calculate the net present value of this investment using a cost of capital of Based on this analysis, would the investment be made?
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