Rundle Electronics is considering investing in manufacturing equipment expected

Question

Rundle Electronics is considering investing in manufacturing equipment expected to cost $320,000. The equipment has an estimated useful life of four years and a salvage value of $ 19,000. It is expected to produce incremental cash revenues of $160,000 per year. Rundle has an effective income tax rate of 30 percent and a desired rate of return of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Determine the net present value and the present value index of the investment, assuming that Rundle uses straight-line depreciation for financial and income tax reporting. b. Determine the net present value and the present value index of the investment, assuming that Rundle uses double-declining- balance depreciation for financial and income tax reporting. d. Determine the payback period and unadjusted rate of return (use average investment), assuming that Rundle uses straight-Hine depreciation e. Determine the payback period and unadjusted rate of return (use average investment), assuming that Rundle uses double- declining-balance depreciation. (Note: Use average annual cash flow when computing the payback period and average annual income when determining the unadjusted rate of return.) Complete this question by entering your answers in the tabs below. Req A and B E Req D and E Determine the net present value and the present value index of the investment, assuming that Harper uses straight-line depreciation and double-declining-balance for financial and income tax reporting. (Round your answers for "Net present value" to the nearest whole dollar amount and your answers for "Present value index" to 2 decimal places.) Net present value Present value index b.

Explanation / Answer

Payback Period

When Straight line method Year 0 Year1 Year2 Year3 Year4 Cash Inflow 160000 160000 160000 160000 Less Depreciation 75250 75250 75250 75250 PBT 84750 84750 84750 84750 Salvage Value 19000 Net Inflows 84750 84750 84750 103750 Taxes@30% 25425 25425 25425 31125 PAT 59325 59325 59325 72625 Add Depreciation 75250 75250 75250 75250 Operating cash Inflows 134575 134575 134575 147875 Cash Outflows -320000 Dicountin factor@12% 1.00 0.89 0.80 0.71 0.64 Dicsounted Cashflows -320000 120156 107282 95788 93977 Discounted Cash Inflows 417204 Cash Out flows -320000 Net Present Value 97204 When Double declining method Year 0 Year1 Year2 Year3 Year4 Cash Inflow 160000 160000 160000 160000 Less Depreciation 160000 80000 40000 21000 PBT 0 80000 120000 139000 Salvage Value 19000 Net Inflows 0 80000 120000 158000 Taxes@30% 0 24000 36000 47400 PAT 0 56000 84000 110600 Add Depreciation 160000 80000 40000 21000 Operating cash Inflows 160000 136000 124000 131600 Cash Outflows -320000 Dicountin factor@12% 1.00 0.89 0.80 0.71 0.64 Dicsounted Cashflows -320000 142857 108418 88261 83634 Discounted Cash Inflows 423170 Cash Out flows -320000 Net Present Value 103170

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

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