Harper Corporation has the following information about the purchase of a new piece of equipment: Cash revenues less cash expenses $50,000 per year Cost of equipment $130,000 Salvage value at the end of the 8th year $22,000 Increase in working capital requirements $35,000 Tax rate 25 percent Life 8 years The cost of capital is 13 percent. Required: Calculate the following assuming straight-line depreciation: Calculate the accrual accounting rate of return on original investment for each of the eight years. Calculate the net present value (NPV). Calculate the internal rate of return (IRR).
Harper Corporation has the following information about the purchase of a new piece of equipment:
Cash revenues less cash expenses $50,000 per year
Cost of equipment $130,000
Salvage value at the end of the 8th year $22,000
Increase in working capital requirements $35,000
Tax rate 25 percent
Life 8 years
The cost of capital is 13 percent.
Required:
- Calculate the following assuming straight-line
depreciation :
- Calculate the accrual accounting
rate of return on original investment for each of the eight years. - Calculate the
net present value (NPV). - Calculate the
internal rate of return (IRR).
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