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Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall
Edition 11ISBN: 978-1259535314Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall
Edition 11ISBN: 978-1259535314 Exercise 39
Interpretation of present value analysis and payback CarCare Garage Company is considering an investment in a new tune-up computer. The cost of the computer is $24,000. A cost analyst has calculated the discounted present value of the expected cash flows from the computer to be $26,220, based on the firm's cost of capital of 20%.
Required:
a. What is the expected return on investment of the machine, relative to 20%? Explain your answer.
b. The payback period of the investment in the machine is expected to be 4.6 years. How much weight should this measurement carry in the decision about whether or not to invest in the machine? Explain your answer.
Required:
a. What is the expected return on investment of the machine, relative to 20%? Explain your answer.
b. The payback period of the investment in the machine is expected to be 4.6 years. How much weight should this measurement carry in the decision about whether or not to invest in the machine? Explain your answer.
Explanation
Verified
Verified
(a) Calculate net present value:
It is ...
Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall
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