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Compute the accounting rate of return

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Reference no: EM133062975

Question - Paella Company is considering the purchase of new equipment that will speed up its manufacturing - process. The equipment will cost $5,950,000 and have a life of 5 years with no expected salvage value.

It is expected that the equipment will produce annual revenues of $6,525,000 with annual expenses of $4,875,000.

Assume an internal discount rate of 9.25% and a cost of capital of 7.5%.

Required - For this equipment

1) Compute the Payback Period.

2) Compute the Accounting Rate of Return.

3) Compute the Net Present Value.

4) Compute the Internal Rate of Return.

Reference no: EM133062975

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