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PAYBACK, ACCOUNTING RATE OF RETURN, NET PRESENT VALUE, INTERNAL RATE OF RETURN
Ripit Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors The outlay required is $480,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow:
Year Cash Revenues Cash Expenses
1 $780,000 $600,000
2 780,000 600,000
3 780,000 600,000
4 780,000 600,000
5 780,000 600,000
Required:
1. Compute the payback period for the NC equipment.
2. Compute the NC equipment's ARR.
3. Compute the investment's NPV, assuming a required rate of return of 10 percent.
4. Compute the investment's IRR.
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