Jenny Durdil Company is considering an investment of $200,000 in new equipment which will be depreciated on a straight-line basis (8-year life, no salvage value). The expected annual revenues and costs of the new product that will be produced from the equipment are:
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$292,000 |
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Less costs and expenses: |
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Manufacturing costs |
S200,000 |
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Equipment depreciation |
25,000 |
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Selling and administrative |
43,900 |
268,900 |
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Income before income taxes |
23,100 |
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Income tax expense (30%) |
6,930 |
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Net income |
$ 16,170 |
Instructions
(a) Compute the annual rate of return.
(b) Compute the cash payback period.
(c) Compute the net present value assuming a 12% required rate of return.
(d) Determine the internal rate of return.
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