Chapter 11 Problem 1. Blue Marlin Company is considering the purchase of new equ
ID: 2482282 • Letter: C
Question
Chapter 11
Problem 1.
Blue Marlin Company is considering the purchase of new equipment for its factory. It will cost $250,000 and have a $50,000 salvage value in five years. The annual net income from the equipment is expected to be $25,000, and depreciation is $40,000 per year
Calculate Blue Marlin’s annual rate of return and payback period for the equipment. (Round your Payback Period to 2 decimal places.)
Problem 2.
Citrus Company is considering a project that has estimated annual net cash flows of $32,000 for six years and is estimated to cost $150,000. Citrus’s cost of capital is 8 percent.
Determine the net present value of the project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided.Round your final answers to 2 decimal places.)
Blue Marlin Company is considering the purchase of new equipment for its factory. It will cost $250,000 and have a $50,000 salvage value in five years. The annual net income from the equipment is expected to be $25,000, and depreciation is $40,000 per year
Explanation / Answer
Problem 1
Payback Period
So payback period is when investment amount is recovered so it is recovered in between 4 th year where it get negative
Payback period = 3 + ( Amount left in beginning of 4th year / Cash inflows of 4th year) = 3 + ( 55,000 / 65,000)
= 3.846 years
Problem 2
Annual rate of return Particulars Amount Cost of Initial Investment (A) 250000 Net income (B) 25000 Non Cash expense ( C) 40000 Net Cash Inflow (D) = ( B + C ) 65000 Annual Rate of return ( D *100 / A) 26%Related Questions
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