What is the book rate of return arr based on the initial

Question

Capital Budgeting with Tax (non-MACRS Depreciation) and Sensitivity Analysis Gravina Com- pany is planning to spend $6,000 for a machine that it will depreciate on a straight-line basis over 10 years with no salvage value. The machine will generate additional cash revenues of $1,200 a year. Gravina will incur no additional costs except for depreciation. Its income tax rate is 35 percent.

Required

1. What is the payback period of the proposed investment under the assumption that the cash inflows occur evenly throughout the year?

2. What is the book rate of return (ARR) based on the initial investment outlay?

3. What is the maximum amount that Gravina Company should invest if it desires to earn an internal rate of return (IRR) of 15 percent?

4. What is the minimum annual (pretax) cash revenue required for the project to earn a 15 percent internal rate of return?

5. Prepare a single schedule to show the NPVs associated with a 10-year life under annual after-tax cash flows of $500, $1,000, and $2,000 and discount rates of 10 percent, 15 percent, and 20 percent.

Answer 1

Make sure about to your assignment that is require to make it more effective. Capital Budgeting with Tax (non-MACRS Depreciation) and Sensitivity Analysis Gravina Company is planning to spend $6,000 for a machine that it will reduce on a straight-line basis over 10 years with no salvage value. The machine will make extra cash revenues of $1,200 a year. Gravina will obtain no additional costs except for for reduction. Its income tax rate is 35 %. As necessitated 1. Describe the payback period of the suggested investment under the assumption which the cash inflows occur evenly throughout the year? 2. Explain the book rate of return (ARR) based on the initial investment outlay? 3. Illustrate the maximum amount that Gravina Company must invest if it desires to earn an internal rate of return (IRR) of 15 %?