Question
In: Accounting
Bakery plans to purchase a new oven for its store. The oven has an estimated useful...
Bakery plans to purchase a new oven for its store. The oven has
an estimated useful life of 4 years.
The estimated pretax cash flows for the oven are as shown in the
table that? follows, with no anticipated change in working
capital.
Bertha's Bakery has a 14?% ?after-tax required rate of return and a
33?% income tax rate.
Assume depreciation is calculated on a? straight-line basis for tax
purposes using the initial oven investment and estimated terminal
disposal value of the oven.
Assume all cash flows occur at? year-end except for initial
investment amounts.
Relevant Cash Flows at End of Each Year
0
1
2
3
4
Initial machine investment
$(90,000)
Annual cash flows from operations
(excluding the depreciation effect)
$36,000
$36,000
$36,000
$36,000
Cash flow from terminal disposal of oven
$10,000
|
1. |
Calculate? (a) net present? value, (b) payback? period, and? (c) internal rate of return. |
|
2. |
Calculate accrual accounting rate of return based on net initial investment. |
Solutions
ekkarill92 answered 1 year agoRelated Solutions
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