Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 12

Calculate NPV, present value ratio, and payback Cowboy Recording Studio is considering the investment of $280,000 in a new recording equipment. It is estimated that the new equipment will generate additional cash flow of $42,000 per year for each year of its 10-year life and will have a salvage value of $30,000 at the end of its life. Cowboys's financial managers estimate that the firm's cost of capital is 10%.
Required:
a. Calculate the net present value of the investment.
b. Calculate the present value ratio of the investment.
c. What is the internal rate of return of this investment, relative to the cost of capital?
d. Calculate the payback period of the investment.