Wheeler Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines. The outlay required is $800,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow:
Year
|
Cash Revenues
|
Cash Expenses
|
|
1
|
$1,300,000
|
$1,000,000
|
|
2
|
1,300,000
|
1,000,000
|
|
3
|
1,300,000
|
1,000,000
|
|
4
|
1,300,000
|
1,000,000
|
|
5
|
1,300,000
|
1,000,000
|
Required
1. Compute the payback period for the NC equipment.
2. Compute the NC equipment's accounting rate of return.
3. Compute the investment's net present value, assuming a required rate of return of 10 percent.
4. Compute the investment's internal rate of return.