PAYBACK, ACCOUNTING RATE OF RETURN, NET PRESENT VALUE, INTERNAL RATE OF RETURN
Whipple Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $480,000. 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
|
$780,000
|
$600,000
|
|
2
|
780,000
|
600,000
|
|
3
|
780,000
|
600,000
|
|
4
|
780,000
|
600,000
|
|
5
|
780,000
|
600,000
|
Required:
1. Compute the payback period for the NC equipment.
2. Compute the NC equipment's ARR.
3. Compute the investment's NPV, assuming a required rate of return of 10 percent.
4. Compute the investment's IRR.