Estimated equipment costs-incremental revenues

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Reference no: EM131847991

Walter Adams is the manager of the Springs Café. The café has decided to add pizza to its menu. The estimated equipment costs, incremental revenues from pizza sales, and incremental cash expenses related to the sales are as follows:

1. Cost of equipment $15,000

2. Incremental annual revenues (for five years) $80,000

3. Incremental annual expenses (for five years) $70,000

Other information:

1. Assume the estimated life of the equipment is five years and that there will be no salvage value. Further, assume the depreciation method used is straight line.

2. Assume the relevant discount rate for NPV purposes is 8 percent.

Required:

1. Determine the ARR.

2. Determine the payback period.

3. Determine the NPV

4. Determine the IRR

Reference no: EM131847991

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