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Unformatted text preview: P9-7Net Present Value, Internal Rate of Return, Payback, Accounting Rate of Return, and Taxes [LO 2, 3, 4, 6]Adrian Sonnetson, the owner of Adrian Motors, is considering the addition of a paint and body shop to his automobile dealership. Construction of a building and the purchase of necessary equipment is estimated to cost $800,000 and both the building and equipment will be depreciated over 10 years using the straight-line method. The building and equipment have zero estimated residual value at the end of 10 years. Sonnetsons required rate of return for this project is 12 percent. Net income related to each year of the investment is as follows:Revenue$500,00Less:Material cost70,000Labor150,000Depreciation80,000Other10,000Income before taxes190,000Taxes at 40%76,000Net income$114,00Determine the net present value of the investment in the paint and body shop. (Round the present value factor calculations to 4 decimal places, e.g. 0.2525. Round all other calculations the final answer to 2 decimal places, e.g. 25.21.)Net present value$[no answer]Should Sonnetson invest in the paint and body shop?...
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This note was uploaded on 08/02/2011 for the course MGMT 425 taught by Professor Brown/lexner during the Spring '11 term at Kaplan University.
- Spring '11