1) Rihanna Company is considering purchasing new equipment for $445,200. It is expected that the equipment will produce net annual cash flows of $53,000 over its 10-year useful life. Annual depreciation will be $44,520. Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.)
2) Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $163,796 and have an estimated useful life of 6 years. It will be sold for $62,300 at that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $28,600. The company’s borrowing rate is 8%. Its cost of capital is 10%. Click here to view PV table.
Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.)
3) Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $232,065, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $46,200 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $240,817, will have a total useful life of 11 years, and will produce net annual cash flows of $39,700 per year.Click here to view PV table.
Evaluate the success of the project. Assume a discount rate of 12%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Original estimate net present value?
Revised estimate new present value?