Thurman Munster, the owner of Adams Family RVs, is considering the addition of a service center his

Question:

Thurman Munster, the owner of Adams Family RVs, is considering the addition of a service center his lot. The building and equipment are estimated to cost $1,100,000 and both the building and equipment will be depreciated over 10 years using the straight-line method. The building and equipment have zero estimated residual value at the end of 10 years. Munster's required rate of return for this project is 12 percent. Net income related to each year of the investment is as follows: Revenue $450,000 Less:

Material cost...................................$ 60,000

Labor...................................................100,000

Depreciation.......................................110,000

Other 10,000........................................280,000

Income before taxes.........................170,000

Taxes at 40%.........................................68,000

Net income.........................................$102,000

(a) Determine the net present value of the investment in the service center. Should Munster invest in the service center?

(b) Calculate the internal rate of return of the investment to the nearest ½ percent.

(d) Calculate the accounting rate of return.

Net Present Value
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Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Payback Period
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