Reference no: EM132604619

Bowman Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year government contract for the manufacture of a special item. The equipment costs $105,000 and would have no salvage value when the contract expires at the end of the four years. Estimated annual operating results of the project are as follows.

Revenue from contract sales $316,000

Expenses other than depreciation $211,000

Depreciation (straight-line basis) 26,250 237,250

Increase in net income from contract work $78,750

All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes.

Question a. Payback period. (Round pay back period year to 2 decimal places.)

Question b. Return on average investment. (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3).)

Question c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 5 percent. (Refer to the annuity table ) (Round your "PV factors" to 3 decimal places.)