Problem - Jesse Company has obtained the following data about a possible planned investment:
Cost $300,000
Terminal salvage value in 10 years 0
Annual cash operating savings excluding depreciation
for 10 years (end of year) $50,000
Estimated useful life in years 10
Minimum desired rate of return 10%
Present value of ordinary annuity, 10%, 10 periods 6.1446
Present value of one, 10%, 10 periods 0.3855
The company uses the straight-line depreciation method for taxes.
Required:
A) Compute the payback period of the investment
B) Compute Accounting rate of return
C) Compute the net present value of the investment.
D) Compute the net present value of the investment if the terminal salvage value is estimated to be $50,000 in 10 years.