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Problem 6 (20 points) ...

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Accounting

Problem 6 (20 points)
LakeFront Company is considering investing in a new dock that
The company expects to use the dock for several years, after
which the new dock will be sold for its salvage value. Here is
information about the proposed investment:
Purchase price of new dock $1,680,000
Useful life in years 5
Salvage value of dock at end of useful life $900,000
Annual revenues from new dock $1,320,000
Annual operating costs of new dock $1,146,000
Annual depreciation expense on new dock* $156,000
*Included in annual operating costs above
Minimum desired rate of return 9%
REQUIRED: Analyze the proposed investment using the
discounted cash flow method. Comment on
whether LakeFront should invest in the new dock.

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