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.
| 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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