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