Thurman Munster, owner of Adams Family RVs, is thinkinf of addition of the service center his lot. Building and equipment are evaluated to cost $1,200,000, and both building and equipment will be depreciated over ten years using straight-line method. Building and equipment have 0 estimated residual value at the end of ten years. Munster's needed rate of return for the project is 12%. Net income related to every year of investment is as follows.
| Revenue |
$450,000 |
|
| Less: |
|
|
| Material Cost |
$60,000 |
|
| Labor |
100,000 |
|
| Depreciation |
120,000 |
|
| Other |
10,000 |
290,000 |
| Income before taxes |
|
160,000 |
| Taxes at 40% |
|
64,000 |
| Net Income |
$96,000 |
|
i) Find net present value of investment in service center. Should Munster invest in service center?
ii) Compute internal rate of return of investment to nearest 0.5%.
iii) Compute payback period of investment.
iv) Compute accounting rate of return.