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Q1) Campbell Golf Company is considering addition of computerized robot to its equipment. Initial cost of equipment is $750,000, and robot is expected to have useful life of five years and no salvage value. Cost savings and increased capacity attributable to machine are evaluated to make increases in firm's annual cash inflows (before considering depreciation) of $200,000. Machine will be depreciated as follows for tax purposes: $200,000 in year 1, $266,700 in year 2, $150.000 in year 3, $88,860 in year 4, and $44,440 in year 5.

Campbell is presently in 30% income tax bracket. 14% after-tax rate of return is desired.

A. Compute the net present value of investment?

B. Should robot be acquired by the firm?  Describe.

C. What is evaluated Internal Rate of Return IRR on this proposed investment?

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  • Category:- Accounting Basics
  • Reference No.:- M917893

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