Question

Carlos Reyes is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life with no salvage value. The equipment is expected to generate income of $12,939 and net cash flow of $62,939 in each year of its six-year life. Santana requires an 8% return on all investments. Required: 1. Compute the payback period. 2. Compute the accounting rate of return. 3. Compute the net present value. Relevant time value of money factors: PV $1 (8%, 6 years) = 0.0632 PVA $1 (8%, 6 years) = 4.6229 PVAD $1 (8%, 6 years) = 4.9927 FV $1 (8%, 6 years) = 1.5869 FVA $1 (8%, 6 years) = 7.3359 FVAD $1 (8%, 6 years) = 7.9228

          Carlos Reyes is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life with no salvage value. The equipment is expected to generate income of $12,939 and net cash flow of $62,939 in each year of its six-year life. Santana requires an 8% return on all investments.

Required:
1. Compute the payback period.
2. Compute the accounting rate of return.
3. Compute the net present value.

Relevant time value of money factors:
PV $1 (8%, 6 years) = 0.0632
PVA $1 (8%, 6 years) = 4.6229
PVAD $1 (8%, 6 years) = 4.9927
FV $1 (8%, 6 years) = 1.5869
FVA $1 (8%, 6 years) = 7.3359
FVAD $1 (8%, 6 years) = 7.9228

Added by John V.

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