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Unformatted text preview: Part (b) What is the simple rate of return on the investment? The simple rate of return on the investment would be determined as follows: Incremental net operating income Investment required= Simple rate of return $240,000 $1,200,000 = 20% 3. Touro Company has gathered the following data on a proposed investment project: Cost of the investment $1,200,000 Estimated salvage value $0 Annual cost inflows $ 240,000 Life of the project 10 years Discount rate 10% Part (a) What is the net present value of this investment? Part (b) Should the proposal be accepted? Why or why not? Since the NPV of the project is positive, the project would be acceptable, as follows: Years Cash Flows 10% Factor Present Value Investment in equipment Now $(1,200,000) 1.000 $(1,200,000) Annual net cash inflows 1-10 240,000 6.145 1,474,800 Net present value $ 274,800...
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This note was uploaded on 07/15/2010 for the course ECON 137A taught by Professor Watson during the Fall '08 term at UCSB.
- Fall '08