Capital budgeting All revenue and expenses other than depreciation will be recei

Question

Capital budgeting

All revenue and expenses other than depreciation will be received and paid in cash. Compute the following for this proposal:

(a) Annual net cash flow: $__________

(b) Payback period: __________ years

(c) Return on average investment: __________%

(d) Net present value, discounted at an annual rate of 6% (present value of $1 due in 10 years, discounted at 6%, is 0.558; present value of $1 received annually for 10 years, discounted at 6%, is 7.360): $__________

Show all calculations:

Explanation / Answer

$55,000.

Assume straight line depreciation, which is $27,000 per year.

Total expenses are $135,000.

Total expenses less depreciation is $108,000.

Revenue is $163,000.

Net cash flow excludes depreciation. Depreciation is not part of cash flow calculations. Depreciation is really for tax purposes but doesn't affect cash flow.

So, $163,000 - $108,000 is $55,000. (Revenue minus (total expenses minus depreciation) equals net cash).

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.