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Problem 1 The latest manufacturing equipment is purchased at a cost of $800,000. As a result,...

Problem 1

The latest manufacturing equipment is purchased at a cost of $800,000. As a result, annual cash revenues are expected to increase by $345,000; annual cash expenses are expected to increase by $162,000; straight-line depreciation is used; the asset has a seven-year life; the salvage value is $100,000. Assume the company is in the new 21% corporate tax bracket.

  1. Determine the accounting rate of return? (round to the nearest %)
  2. Determine the payback period?
  3. Determine the NPV assuming a minimum required rate of return of 8%?
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