Q2:Terry's Tiles is reviewing a capital investment proposal. The initial cost of the project and...
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Accounting
Q2:Terry's Tiles is reviewing a capital investment proposal. The initial cost of the project and the net cash flows for each year are presented in the schedule below. It is estimated that there would be no salvage value at the end of the investment's life.
Year
Initial cost and carrying amount
Annual net cash flow
Annual net profit
0
$105 000
1
70 000
$ 50 000
$15 000
2
42 000
45 000
17 000
3
21000
40 000
19 000
4
7 000
35 000
21 000
5
0
30 000
23 000
Terry's uses a required rate of return of 16% to evaluate new capital investment proposals.
Required:
1)Calculate the project's payback period.3 marks
2)Calculate the accounting rate of return on the investment proposal. Base your calculation on the initial cost of the investment.3 marks
3)Calculate the proposal's net present value4 marks
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