The cost of a machine that will be depreciated on a straight line basis is $180,000....

Transcribed Image Text:

The cost of a machine that will be depreciated on a straight line basis is $180,000. Its useful life is 4 years. The company uses 3 years as its payback cut-off rule and 20% for its minimum AAR. Year 1 2 3 4 Cash Flow 60,000 100,000 10,000 25,000 The required return is 8%. 1) Compute the NPV and recommend action ( calculatey) 2) Compute the payback period and recommend action Accounting Income 40,000 80,000 (20,000) 40,000 3) Compute the Average Accounting Return and recommend action 4) Compute the Profitability Index and recommend action The cost of a machine that will be depreciated on a straight line basis is $180,000. Its useful life is 4 years. The company uses 3 years as its payback cut-off rule and 20% for its minimum AAR. Year 1 2 3 4 Cash Flow 60,000 100,000 10,000 25,000 The required return is 8%. 1) Compute the NPV and recommend action ( calculatey) 2) Compute the payback period and recommend action Accounting Income 40,000 80,000 (20,000) 40,000 3) Compute the Average Accounting Return and recommend action 4) Compute the Profitability Index and recommend action

Answer rating: 100% (QA)

To calculate the Net Present Value NPV Payback Period Average Accounting Return AAR and Profitability Index PI well need to analyze the provided cash ... View the full answer