Woods Company Is Considering the Purchase of Some Equipment

Essay

Woods Company is considering the purchase of some equipment.The initial investment will be $100,000.The estimated useful life of the equipment will be 5 years,at which point it will have a zero terminal salvage value.The annual savings in cash operating costs are $29,000.The company has a minimum desired rate of return of 12%.The company uses straight-line depreciation.Ignore income taxes.
Given:
The present value of ordinary annuity at 12% and 5 periods is 3.6048.
The present value of one at 12% and 5 periods is 0.5674.
Required:
Compute:
A)Net present value
B)Payback period
C)Accounting rate of return using the average investment