Capital budgeting
Golden Flights, Inc. is considering buying some specialized machinery which would enable the company to obtain a six-year government contract for the design and engineering of a futuristic plane. The machinery costs $975,000 and must be destroyed for security reasons at the end of the six-year contract period. The estimated annual operating results of the project are as follows:
All revenue from the contract and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. You are to compute the following three factors for this project:
(a) Payback period: __________ years
(b) Return on average investment: ___________%
(c) Net present value of the investment in this machinery, discounted at an annual rate of 12% (an annuity table shows that the present value of $1 received annually for six years discounted at 12% is 4.111): $___________
$\begin{array}{l}
\text { Revenue from sales of new luggage line }&&\$925,000\
\text { Expenses other than depreciation } & \$ 625,000 \
\text { Depreciation (straight-line basis) } & 250,000&(875,000)\
\text { Increase in net income from the new line }&&\$50,000
\end{array}$

Question

Capital budgeting
Golden Flights, Inc. is considering buying some specialized machinery which would enable the company to obtain a six-year government contract for the design and engineering of a futuristic plane. The machinery costs $975,000 and must be destroyed for security reasons at the end of the six-year contract period. The estimated annual operating results of the project are as follows:
All revenue from the contract and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. You are to compute the following three factors for this project:
(a) Payback period: __________ years
(b) Return on average investment: ___________%
(c) Net present value of the investment in this machinery, discounted at an annual rate of 12% (an annuity table shows that the present value of $1 received annually for six years discounted at 12% is 4.111): $___________
 $\begin{array}{l}
\text { Revenue from sales of new luggage line }&&\$925,000\
\text { Expenses other than depreciation } & \$ 625,000 \
\text { Depreciation (straight-line basis) } & 250,000&(875,000)\
\text { Increase in net income from the new line }&&\$50,000
\end{array}$

Quizplus · Accepted Answer

The Answer of Capital budgeting
Golden Flights, Inc. is considering buying some specialized machinery which would enable the company to obtain a six-year government contract for the design and engineering of a futuristic plane. The machinery costs $975,000 and must be destroyed for security reasons at the end of the six-year contract period. The estimated annual operating results of the project are as follows:
All revenue from the contract and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. You are to compute the following three factors for this project:
(a) Payback period: __________ years
(b) Return on average investment: ___________%
(c) Net present value of the investment in this machinery, discounted at an annual rate of 12% (an annuity table shows that the present value of $1 received annually for six years discounted at 12% is 4.111): $___________
 $\begin{array}{l}
\text { Revenue from sales of new luggage line }&&\$925,000\
\text { Expenses other than depreciation } & \$ 625,000 \
\text { Depreciation (straight-line basis) } & 250,000&(875,000)\
\text { Increase in net income from the new line }&&\$50,000
\end{array}$

Capital Budgeting Golden Flights, Inc

Capital Budgeting
Golden Flights, Inc