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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Sales
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$292,000
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Less costs and expenses:
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|
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Manufacturing costs
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S200,000
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|
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Equipment depreciation
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25,000
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|
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Selling and administrative
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43,900
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268,900
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Income before income taxes
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23,100
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Income tax expense (30%)
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6,930
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Net income
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$ 16,170
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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.