Question - Capital budgeting
Flynn Corporation is debating whether to purchase a new computerized production system. The system will cost $450,000, and have an estimated 10-year life with a salvage value of $70,000. The estimated operating results from the new production system are as follows:
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Incremental revenue
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$180,000
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Incremental expenses
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Expenses other than depreciation
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$85,000
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Depreciation (straight-line basis)
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38,000
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(123,000)
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Incremental net income
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$57,000
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All revenue and expenses other than depreciation will be received and paid in cash. Compute the following for this proposal:
(a) Annual net cash flow: $__________
(b) Payback period: __________ years
(c) Return on average investment: __________%
(d) Net present value, discounted at an annual rate of 6% (present value of $1 due in 10 years, discounted at 6%, is 0.558; present value of $1 received annually for 10 years, discounted at 6%, is 7.360): $__________