Flights, Inc., is considering buying some specialized machinerythat would enable the company to obtain a six-year governmentcontract for the design and engineering of a futuristic plane. Themachinery costs $975,000 and must be destroyed for security reasonsat the end of the six-year contract period. The estimated annualoperating results of the project are as follows:
| Revenue fromsales under contract |
|
$975,000.00 |
| Expenses other than depreciation |
$560,000.00 |
|
| Depreciation (straight-line basis) |
$162,500.00 |
($722,500.00) |
| Increase in net income from government contract |
|
$252,500.00 |
All revenue from the contract and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. You are to compute the following three factors for this project:
(a) Payback period: __________years
(b) Return on average investment:__________%
(c) Net present value of the investment in this machinery, discounted at an annual rate of 12% (an annuitytable shows that the present value of $1 received annually for sixyears discounted at 12% is 4.111): $__________