Net present value and present value index of the investment

Assignment Help Financial Management

Reference no: EM131925292

Harper Electronics is considering investing in manufacturing equipment expected to cost $250,000. The equipment has an estimated useful life of four years and a salvage value of $25,000. It is expected to produce incremental cash revenues of $125,000 per year. Harper has an effective income tax rate of 30 percent and a desired rate of return of 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

Determine the net present value and the present value index of the investment, assuming that Harper uses straight-line depreciation for financial and income tax reporting.

Determine the net present value and the present value index of the investment, assuming that Harper uses double-declining-balance depreciation for financial and income tax reporting.

Determine the payback period and unadjusted rate of return (use average investment), assuming that Harper uses straight-line depreciation.

Determine the payback period and unadjusted rate of return (use average investment), assuming that Harper uses double-declining-balance depreciation. (Note: Use average annual cash flow when computing the payback period and average annual income when determining the unadjusted rate of return.)

Reference no: EM131925292

Questions Cloud

Expected npv as found in traditional analysis : Including real options in a capital budgeting analysis can raise, but not lower, a project's expected NPV as found in a traditional analysis.

What is the present value of the annual cash flow : An investment, which is worth 20,500 dollars and has an expected return of 9.83 percent, is expected to pay fixed annual cash flows for a given amount of time.

Which method is better for capital investment decision : Based on the internal rate of return, should the company invest in the equipment? Which method is better for this capital investment decision?

What is total debt ratio : A firm has a long-term debt-equity ratio of .3. Shareholders’ equity is $1.08 million. What is the total debt ratio?

Net present value and present value index of the investment : Determine net present value and present value index of investment, assuming that Harper uses straight-line depreciation for financial and income tax reporting.

What will happen to the stock price : What will happen to the stock price if the company managers think that there are good investment opportunities and retain 30% of the earnings (plowback ratio).

What should the nominal spot exchange rate : According to the Law of One Price, what should the nominal spot exchange rate ($/£) be? Assume the U.S. government imposes a tariff of $0.50 per bushel.

Receivable balance based on three new cash discount policies : what will be new accounts receivable balance based on three new cash discount policies?

What is best estimate of current stock price : The 3 and 6 month T-bills and the S&P500 are currently returning 3%, 3.76% and 8.2% per annum respectively. A Company earns a 15% rate of return on the 36%.

User Account

All Pages