Problemrent-to-own equipment co is considering a new, Ask an Expert

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Problem:

Rent-to-Own Equipment Co. is considering a new product line that requires new manufacturing equipment that will cost $950,000, with shipping and installation costing another $50,000. The new line is expected to generate incremental revenue over the next four years in the amounts of $650,000 each year. It will incur incremental costs of $150,000 per year. The equipment will be depreciated using straight line depreciation over 4 years. The tax rate is 40%. Rent-to-Own's required rate of return is 10%.

Required:

Question 1: What is the after tax cash flow for this project for years 1-4:

Question 2: What is the payback period for this project.

Question 3: What is the NPV of this project?

Question 4: What is the internal rate of return for this project?

Question 5: Should Rent-to-Own install the equipment to implement the new product line?

Note: Please show the work not just the answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167825

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