Helicopter Gear is planning to expand its product line, which requires investmen
ID: 2498451 • Letter: H
Question
Helicopter Gear is planning to expand its product line, which requires investment of $560,000 in special-purpose machinery. The machinery has a useful life of seven years and no salvage value. The estimated annual results of offering the new products are as follows:
Revenue $ 532,000
Expenses (Including straight-line depreciation) (504,800)
Increase in net income $ 27,200
All revenue from the new products and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes.
rev: 08_09_2012
28. Required information
The payback period for this proposed investment is:
2.6 years.
7.0 years.
5.2 years.
10.3 years.
29. Required information
The return on average investment for this proposed investment is closest to:
5.11%.
9.71%.
38.29%.
4.86%.
30. Required information
Compute the net present value of this proposed investment, using a discount rate of 10%. (An annuity table shows that the present value of $1 received annually for seven years, discounted at 10%, is 4.868.)
$107,200.
$521,850.
($38,150).
$452,800.
Explanation / Answer
Annual Net income (Cash Flow)
Expenses =$(504,800)
Less: depreciation (560,000/7) =$80,000
Net Expense (cash flow) =$(424,800)
Revenue = $532,000
Income will be =$107,200
A) Payback period
Investment/ Net income = $560,000/$107,000 =5.2 Years
B) Return on Average Investment
Investment/Income (As given in Question)
= $560,000/$27,200 =4.86 %
C) Net Present Vale
Therefore,The answer is option (c)
Sl.no Particulars Year Amount PVF @ 10% Present Value A Cash outflow 0 560,000 1 ($560,000) B Cash Inflow 1-7 107,200 4.868 $521,850 Net present value ($38,150)Related Questions
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