he. 2 Bob Jensen Incorporated purchased a $650,000 machine to manufacture specialty taps for electrical equipment. Jensen expects tosell all it can manufacture in the next 10 years. To encourage capital investments, the government has exempted taxes on profits fromnew investments. This legislation is to be in effect for the foreseeable future. The machine is expected to have a 10-year useful life withno salvage value. Jensen uses straight-line depreciation. Jensen uses a 10% discount rate in evaluating capital investments, theinvestment is subject to taxes, and the projected pretax operating cash inflows are as follows:Year12345678910Pretax CashInflow$ 65,00080,000120,000200,000240,000300,000270,000240,000120,00080,000Jensen has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during theperiod of this investment. The firm uses straight-line depreciation. Assume, for simplicity, that MACRS depreciation rules do not apply. 1. Unadjusted payback period2a. ARR based on initial investment2b. ARR based on average investment3. NPVPresent value payback period5.Internal rate of return (IRR)6. Modified internal rate of return (MIRR)years%6%years%6%6

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Description: he. 2 Bob Jensen Incorporated purchased a $650,000 machine to manufacture specialty taps for electrical equipment. Jensen expects tosell all it can manufacture in the next 10 years. To encourage capital investments, the government has exempted taxes

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Unadjusted payback period 2a. ARR based on initial investment 2b. ARR based on average investment 3. NPV years **

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 11P

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Bob Jensen Incorporated purchased a $660,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. To encourage capital investments, the government has exempted taxes on profits from new investments. This legislation is to be in effect for the foreseeable future. The machine is expected to have a 10-year useful life with no salvage value. Jensen uses straight-line depreciation. Jensen uses a 10% discount rate in evaluating capital investments, the investment is subject to taxes, and the projected pretax operating cash inflows are as follows: Year Pretax Cash Inflow 1 $ 66,000 2 81,000 3 122,000 4 203,000 5 244,000 6 305,000 7 275,000 8 244,000 9 122,000 10 81,000 Jensen has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during the period of this investment. The firm uses straight-line depreciation. Assume, for…
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