Question

Basic Concepts Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is $2,266,667. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Cash Expenses Cash Revenues Year $2,960,000 $2,280,000 1 2,960,000 2,280,000 2,960,000 2,280,000 2,960,000 2,280,000 5 2,960,000 2,280,000 The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems. Required: 1. Compute the project's payback period. If required, round your answer to two decimal places. 3.33 years 2. Compute the project's accounting rate of return. Enter your answer as a whole percentage value (for example, 16% should be entered as "16" in the answer box). 15 X % 3. Compute the project's net present value, assuming a required rate of return of 10 percent. When required, round your answer to the nearest dollar. 20 X 4. Compute the project's internal rate of return. Enter your answers as whole percentage values. 20 х % Between 15 X % and

Answer 1

(A-B) A Cumulative cash Cash inflow inflow Cash expenses Years Cash revenue 2,280,000 680,000 1 2,960,000 680,000 2,280,000 680,000 1,360,000 2. 2,960,000 2,960,000 2,280,000 680,000 2,040,000 4 2,960,000 2,280,000 680,000 2,720,000 5 2,960,000 2,280,000 680,000 3,400,000 Pay back period = 3 + [ (2,266,667 -2,040,000) 680,000] 3.33 years

K L M C=(A-B) (DxC) A B Years Cash revenue Cash expenses Cash inflow PVF @ 10% Present value 1 (2,266,667.00) (2,266,667) (2,266,667) 2,960,000 1 2,280,000 680,000 0.90909 618,181.82 2,280,000 680,000 2 2,960,000 0.82645 561,983.47 2,960,000 510,894.06 3 2,280,000 680,000 0.75131 2,960,000 2,280,000 680,000 0.68301 464,449.15 0.62092 680,000 422,226.50 5 2,960,000 2,280,000 Net present value 311,068.00 Internal rate of return 4.76% Internal rate of return between whole percentage is: 4% - 5% T

Н J К M C=(A-B) (DxC) A. В Years Cash revenue Cash expenses Cash inflow PVF @ 10% Present value -2266667 K3 *L3 13-J3 -1/(1.1)^1K4*L4 - 1 / (1.1) 2- K5*L5 -1/(1.1)^3K6*L6 - 1/(1.1)^4=K7*L7 - 1/(1.1)^5K8*L8 -SUM(M3:M8) =IRR(M3:M8) 1 2960000 2280000 E 14- J4 2960000 2 2280000 E 15 - J5 2960000 2280000 16-J6 4 E17-J7 2960000 2280000 2960000 2280000 5 18- J8 Net present value Internal rate of return Internal rate of return between whole percentage is: 4% -5%