Solution-Calculate the annual rate of return

Calculate the annual rate of return

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Reference no: EM133068491

Question - Blossom Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment:

Old Equipment		New Equipment
Cost	$80,400	Cost	$38,400
Accumulated depreciation	$41,700	Estimated useful life	8 years
Remaining life	8 years	Salvage value in 8 years	$5,000
Current salvage value	$10,680	Annual cash operating costs	$30,900
Salvage value in 8 years	$0
Annual cash operating costs	$36,000

Depreciation is $10,050 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over an eight-year period with salvage value of $5,000.

Required -

(a) Determine the cash payback period. (Ignore income taxes.)

(b) Calculate the annual rate of return.

Reference no: EM133068491

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Calculate the annual rate of return

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