A company is considering investing in manufacturing equipment expected to cost $184,000. The equipment has an estimated useful life of four years and a salvage value of $24,000. It is expected to produce incremental cash revenues of $95,000 per year. Zito has an effective income tax rate of 30 percent and a desired rate of return of 12 percent
(a) Determine the net present value and the present value index of the investment, assuming that the company uses straight-line depreciation for financial and income tax reporting.
- Net present value:
- Present value index:
(b) Determine the net present value and the present value index of the investment, assuming that the company uses double-declining-balance depreciation for financial and income tax reporting.
- Net present value:
- Present value index:
(c) Determine the payback period and unadjusted rate of return (use average investment), assuming that the company uses straight-line depreciation.
d)Determine the net present value and the present value index of the investment, assuming that the company uses double-declining-balance depreciation for financial and income tax reporting.
- Net present value $
- Present value index
(e)Determine the payback period and unadjusted rate of return (use average investment), assuming that the company uses straight-line depreciation.
f)Determine the payback period and unadjusted rate of return (use average investment), assuming that the company uses double-declining-balance depreciation.