Question

Stuart Electronics is considering investing in manufacturing equipment expected to cost $350,000. The equipment has an estimated useful life of four years and a salvage value of $ 22,000. It is expected to produce incremental cash revenues of $175,000 per year. Stuart has an effective income tax rate of 30 percent and a desired rate of return of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

   

Required

1. Determine the net present value and the present value index of the investment, assuming that Stuart uses straight-line depreciation for financial and income tax reporting.

2. Determine the net present value and the present value index of the investment, assuming that Stuart uses double-declining-balance depreciation for financial and income tax reporting.

4. Determine the payback period and unadjusted rate of return (use average investment), assuming that Stuart uses straight-line depreciation.

5. Determine the payback period and unadjusted rate of return (use average investment), assuming that Stuart uses double-declining-balance depreciation. (Note: Use average annual cash flow when computing the payback period and average annual income when determining the unadjusted rate of return.)

Complete this question by entering your answers in the tabs below.

• Req A and B
• Req D and E

Determine the net present value and the present value index of the investment, assuming that Harper uses straight-line depreciation and double-declining-balance for financial and income tax reporting. (Round your answers for "Net present value" to the nearest whole dollar amount and your answers for "Present value index" to 2 decimal places.)

	Net present value Present value index a. b.

Determine the payback period and unadjusted rate of return (use average investment), assuming that Harper uses straight-line depreciation and double-declining-balance depreciation. (Note: Use average annual cash flow when computing the payback period and average annual income when determining the unadjusted rate of return.) (Round your answers to 2 decimal places.)

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	Payback period Unadjusted rate of return d. years % e. years %

Answer 1

it simple cash flow calculation and discount