Homework Answers
Answer:
a1
Unadjsuted rate of return = Net income / Average investment
Average investment = (Cost + salvage value) / 2 = $104,000/ 2 = $52,000
Unadjusted rate of return = $6,100/ $52,000 = 11.73%
a2
Yes, company should invest in the project.
b1
| year | Cash flow |
| 0 | -$104000 |
| 1 | $22497 |
| 2 | $22497 |
| 3 | $22497 |
| 4 | $22497 |
| 5 | $22497 |
| 6 | $22497 |
| Internal Rate of Return | 8% |
b2
Yes, company should investment in the
equipment
c
IRR method is better for capital investment decision.
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