Business, 05.05.2020 08:07, Worldprofessor6252

Munoz Electronics is considering investing in manufacturing equipment expected to cost $300,000. The equipment has an estimated useful life of four years and a salvage value of $ 17,000. It is expected to produce incremental cash revenues of $150,000 per year. Munoz has an effective income tax rate of 40 percent and a desired rate of return of 12 percent.

a. Determine the net present value and the present value index of the investment, assuming that Munoz uses straight-line depreciation for financial and income tax reporting.
b. Determine the net present value and the present value index of the investment, assuming that Munoz uses double-declining-balance depreciation for financial and income tax reporting.
c. Determine the payback period and unadjusted rate of return (use average investment), assuming that Munoz uses straight-line depreciation.
d. Determine the payback period and unadjusted rate of return (use average investment), assuming that Munoz uses double-declining-balance depreciation. (Note: Use average annual cash flow when computing the payback period and average annual income when determining the unadjusted rate of return.)

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Munoz Electronics is considering investing in manufacturing equipment expected to cost $300,000. The...