Houston Inc. is considering the purchase of new equipment that will automateproduction and thus reduce labor costs. Houston made the following estimatesrelated to the new machinery:Cost of the equipment$146,000Reduced annual labor costs$45,000Estimated life of equipment10 yearsTerminal disposal value$0After-tax cost of capital8%Tax rate28%Assume depreciation is calculated on a straight-line basis for tax purposes.Assume all cash flows occur at year-end except for initial investment amounts.Calculate (a) net present value, (b) payback period, (c) discountedpaybackperiod, and (d) internal rate of return.1.Compare and contrast the capital budgeting methods inrequirement 1.2.

Name: Houston Inc. is considering the purchase of new equipment that will a
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Description: Houston Inc. is considering the purchase of new equipment that will automateproduction and thus reduce labor costs. Houston made the following estimatesrelated to the new machinery:Cost of the equipment$146,000Reduced annual labor costs$45,000Estima

1a) Net Present Value =Sum of the present value of cash inflows-Present value of cash outflows.…

Business

Finance

Assume depreciation is calculated on a straight-line basis for tax purposes. Assume all cash flows occur at year-end except for initial investment amounts. 1. Calculate (a) net present value, (b) payback period, (c) discounted

Assume depreciation is calculated on a straight-line basis for tax purposes. Assume all cash flows occur at year-end except for initial investment amounts. 1. Calculate (a) net present value, (b) payback period, (c) discounted

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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