Question

Adrian Sonnetson, the owner of Handley Motors, is considering the addition of a paint and body shop to his automobile dealership. Construction of a building and the purchase of necessary equipment is estimated to cost $801,300, and both the building and equipment will be depreciated over 10 years using the straight-line method. The building and equipment have zero estimated residual value at the end of 10 years. Sonnetson’s required rate of return for this project is 12 percent. Net income related to each year of the investment is as follows:

Revenue		$647,200
Less:
Material cost		71,100
Labor		150,700
Depreciation		80,130
Other		8,000
Income before taxes		337,270
Taxes at 40%		134,908
Net income		$202,362

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Determine the net present value of the investment in the paint and body shop. (Round present value factor calculations to 4 decimal places, e.g. 1.2151 and final answer to 0 decimal place, e.g. 125. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Net present value

$enter the net present value in dollars rounded to 0 decimal places

Should Sonnetson invest in the paint and body shop?

Sonnetson select an option                                                                      shouldshould not invest in the paint and body shop.

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Calculate the internal rate of return of the investment (approximate).

Internal rate of return is

select an option                                                                      less than 30%equal to 30%greater than 30%

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Calculate the payback period of the investment. (Round answer to 1 decimal place, e.g. 12.5.)

Payback period

enter payback period in years rounded to 1 decimal place  years

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Calculate the accounting rate of return. (Round final answer to 2 decimal place, e.g. 45.67%.)

Accounting rate of return

enter the accounting rate of return in percentages rounded to 2 decimal places  %

Answer 1