Using straight-line depreciation over the life of the asset

Reference no: EM13607415

1. Keira Knightley Company buys a piece of equipment for $36,442 that will last for 7 years. The equipment will generate cash flows of $7,000 per year and will have no salvage value at the end of its life. Ignore taxes unless told to include them. What is the net present value using a 12% cost of capital?

A $2,681

B. $4,495

C. ($2,681)

D. ($4,495)

2. What is the internal rate of return?

A. 14%

B. 12%

C. 10%

D. 8%

3. Using straight-line depreciation over the life of the asset, what is the after tax cash flow in year 3? Assume a 30% tax rate and that the original cash flow was before tax.

A. $4,900

B. $1,794

C. $1,256

D. $6,462

4. What is the payback period?

A. 5.2 years

B. 5.2%

C. 520%

D. 5.2 times

Reference no: EM13607415

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