BASIC CONCEPTS
Roberts Company is considering an investment in equipment that is capable of producing electronic parts twice as fast as existing technology. The outlay required is $2,340,000. The equipment is expected to last five years and will have no salvage value.
The expected cash flows associated with the project are as follows:
|
Year |
Cash Revenues |
Cash Expenses |
|
1 |
$3,042,000 |
$2,340,000 |
|
2 |
3,042,000 |
2,340,000 |
|
3 |
3,042,000 |
2,340,000 |
|
4 |
3,042,000 |
2,340,000 |
|
5 |
3,042,000 |
2,340,000 |
Required:
1. Compute the project’s payback period.
2. Compute the project’s accounting rate of return on:
a. Initial investment
b. Average investment
3. Compute the project’s net present value, assuming a required rate of return of 10 percent.
4. Compute the project’s internal rate of return.