Pack & Carry is debating whether to invest in new equipment to
manufacture a line of high-quality luggage. The new equipment would cost
$1,728,125, with an estimated five-year life and no salvage value. The
estimated annual operating results with the new equipment are as
follows:
Revenue from Sales of New Luggage $800,000
Expenses Other Than Depreciation $306,250
Depreciation (Straight-Line Basis) 345,625 651,875
Increase in Net Income from the New Line 148,125
All revenue from the new luggage line 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 for
the investment in the new equipment to produce the new luggage line:
a. Annual cash flows.
b. Payback period.
c. Return on average investment.
d. Total present value of the expected future annual cash inflows, discounted at an annual rate of 10 percent.
e. Net present value of the proposed investment discounted at 10 percent.
Click here for the solution: Pack & Carry is debating whether to invest in new equipment to manufacture a line of high-quality luggage
