The Dohickie Company is considering an investment in equipment. The following information is available: Cost $300,000...
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The Dohickie Company is considering an investment in equipment. The following information is available: Cost $300,000 ($200,000 down, $50,000 end of first year and starting at the end of the fourth year, $10,000 per year until completely paid) Economic Life- 10 years Annual Profit from Investment Years 1-5 $50,000/per year Years 6-10 $30,000/per year Salvage Value $1,000 Repair Required at End of Year 8 - $2,000 No Need for Old Machine if Purchasing New One. Cost $300,000 Accum. Depreciation $280,000 Sales Price $25,000 Gain on Sale $5,000 Required Rate of Return 8% REQUIRED: 1) Using Net Present Value Method, show calculations to determine if investment should be made. 2) What is the Payback Period? The Dohickie Company is considering an investment in equipment. The following information is available: Cost $300,000 ($200,000 down, $50,000 end of first year and starting at the end of the fourth year, $10,000 per year until completely paid) Economic Life- 10 years Annual Profit from Investment Years 1-5 $50,000/per year Years 6-10 $30,000/per year Salvage Value $1,000 Repair Required at End of Year 8 - $2,000 No Need for Old Machine if Purchasing New One. Cost $300,000 Accum. Depreciation $280,000 Sales Price $25,000 Gain on Sale $5,000 Required Rate of Return 8% REQUIRED: 1) Using Net Present Value Method, show calculations to determine if investment should be made. 2) What is the Payback Period?
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Answer rating: 100% (QA)
SOLUTION 1 To determine whether the investment should be made using the Net Present Value NPV method we need to calculate the present value of the cash flows associated with the investment and compare ... View the full answer
Related Book For
Financial Accounting IFRS
ISBN: 978-1118285909
2nd edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Posted Date:
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