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Amanda's Bakery plans to purchase a new oven for its store. The oven has an estimated...
Amanda's 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. Amanda's Bakery has a 14% after-tax required rate of return and a 35% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. LOADING..
. Relevant Cash Flows at End of Each Year 2 Year 0 Year 1 Year 2 Year 3 Year 4 3 Initial oven investment $(185,000) 4 Annual cash flows from operations (excluding the depreciation effect) $77,000 $77,000 $77,000 $77,000 5 Cash flow from terminal disposal of oven $6,000
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.
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ekkarill92 answered 2 years agoRelated Solutions
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