30. The management of P Corporation is considering purchasing equipment that wou

Question

30. The management of P Corporation is considering purchasing equipment that would increase sales revenues by $269,000 per year, and increase cash operating expenses by $156,000 per year. The equipment would cost $294,000, and have a 6-year life with no salvage value. The annual depreciation would be $49,000. The simple rate of return on the investment is closest to A) 16.7% B) 21 8% C) 23.8% D) 38.4% 31. A corporation is considering purchasing equipment that would increase sales revenues by $298,000 per year, and increase cash operating expenses by $143,000 per year. The equipment would cost $712,000, and have an 8-year life with no salvage value. The annual depreciation would be $89,000. The simple rate of return on the investment is closest to: A)93% (8)21.8% C) 22.1% D) 12.5% 32. The following data concern an investment project: Investment in equipment Annual net cash inflows $180,000 $42,000 Salvage value of the equipment.$70,000 $20,000 5 years 12% Life of the project Required rate of return... The working capital will be released for use elsewhere at the conclusion of the project. Is this project acceptable? Support your answer by showing the calculation of the project's net present value

Explanation / Answer

32 Now Year 1 Year 2 Year 3 Year 4 Year 5 Initial investment -180000 Working capital -20000 Annual net cash inflows 42000 42000 42000 42000 42000 Salvage value 70000 Working capital release 20000 Net cash flows -200000 42000 42000 42000 42000 132000 PV factor 1 0.892857 0.797194 0.71178 0.635518 0.567427 Present value -200000 37500 33482 29895 26692 74900 Net present value 2469 The profect should be accepted as Net present value is positive

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