The management of Wombat Village, a private refuge for endangered wildlife, is considering an investment in an
Question:
The management of Wombat Village, a private refuge for endangered wildlife, is considering an investment in an electrified fencing system to keep out feral foxes and cats. The fences would cost $186 300 and have a useful life of seven years. The refuge's finance manager has estimated that the new fencing system will save the business $40 500 per year after taxes in security costs. The fencing system will have no salvage value. The tax rate is 36 percent.
Required:
1 Calculate the payback period for the proposed capital expenditure.
2 Calculate the net present value of the proposed investment, assuming a required rate of return after tax of:
(a) 8 percent.
(b) 10 percent.
(c) 12 percent.
Net Present ValueWhat is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
Step by Step Answer:
1 Payback period 46 years 2 Net present value analysis Discount r...View the full answer
Management Accounting
ISBN: 9781760421144
7th Edition
Authors: Kim Langfield Smith, Helen Thorne, David Alan Smith, Ronald W. Hilton
