Question:
BASIC CONCEPTS
Roberts Company is considering an investment in equipment that is capable of producing electronic parts twice as fast as existing technology. The outlay required is $2,340,000. The equipment is expected to last five years and will have no salvage value.
The expected cash flows associated with the project are as follows:
|
Year
|
Cash Revenues
|
Cash Expenses
|
|
1
|
$3,042,000
|
$2,340,000
|
|
2
|
3,042,000
|
2,340,000
|
|
3
|
3,042,000
|
2,340,000
|
|
4
|
3,042,000
|
2,340,000
|
|
5
|
3,042,000
|
2,340,000
|
Required:
1. Compute the project's payback period.
2. Compute the project's accounting rate of return on:
a. Initial investment
b. Average investment
3. Compute the project's net present value, assuming a required rate of return of 10 percent.
4. Compute the project's internal rate of return.