Ivory Corporation is reviewing an investment proposal that has an initial cost of $52,500. An estimate of the investment's end-of-year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to book value, and there will be no salvage value at the end of the investment's life.
Ivory uses a 14% after-tax target rate of return for new investment proposals.
Required:
A. Calculate the project's payback period.
B. Calculate the accounting rate of return on the initial investment.
C. Calculate the proposal's net present value. Round to the nearest dollar.

Question

Ivory Corporation is reviewing an investment proposal that has an initial cost of $52,500. An estimate of the investment's end-of-year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to book value, and there will be no salvage value at the end of the investment's life.  
Ivory uses a 14% after-tax target rate of return for new investment proposals.
Required: 
A. Calculate the project's payback period.
B. Calculate the accounting rate of return on the initial investment.
C. Calculate the proposal's net present value. Round to the nearest dollar.

Quizplus · Accepted Answer

The Answer of Ivory Corporation is reviewing an investment proposal that has an initial cost of $52,500. An estimate of the investment's end-of-year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to book value, and there will be no salvage value at the end of the investment's life.  
Ivory uses a 14% after-tax target rate of return for new investment proposals.
Required: 
A. Calculate the project's payback period.
B. Calculate the accounting rate of return on the initial investment.
C. Calculate the proposal's net present value. Round to the nearest dollar.

Ivory Corporation Is Reviewing an Investment Proposal That Has an Initial