Calculating Accounting Rate of Return, Payback Period, Net Present Value
Titan Production Co. is considering an investment in new machinery for its factory. Various information about the proposed investment follows:
Initial investment | $750,000 |
Useful life | 6 years |
Salvage value | $120,000 |
Annual net income generated | $ 66,000 |
Titan’s cost of capital | 11% |
Required:
Help Titan evaluate this project by calculating each of the following:
1.Annual rate of return.
2.Payback period.
3.Net present value (NPV).
4.Recalculate Titan’s NPV assuming its cost of capital is 12 percent.
5.Based on your calculations of NPV, what would you estimate the project’s internal rate of return to be?
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