Compute the annual rate of return and cash payback period

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Reference no: EM13900871

Jenny Durdil Company is considering an investment of $200,000 in new equipment which will be depreciated on a straight-line basis (8-year life, no salvage value). The expected annual revenues and costs of the new product that will be produced from the equipment are:

Sales


$292,000

Less costs and expenses:



Manufacturing costs

S200,000


Equipment depreciation

25,000


Selling and administrative

43,900

268,900

Income before income taxes


23,100

Income tax expense (30%)


6,930

Net income


$ 16,170

Instructions

(a) Compute the annual rate of return.

(b) Compute the cash payback period.

(c) Compute the net present value assuming a 12% required rate of return.

(d) Determine the internal rate of return.

Reference no: EM13900871

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