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41) Managerial Financial Accounting Assignments P9-7 Solution

# 41) Managerial Financial Accounting Assignments P9-7 Solution

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P9-7 Net 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. Sonnetson’s required rate of return for this project is 12 percent. Net income related to each year of the investment is as follows: Revenue \$500,00 0 Less: Material cost 70,000 Labor 150,000 Depreciation 80,000 Other 10,000 Income before taxes 190,000 Taxes at 40% 76,000 Net income \$114,00 0

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Determine 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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41) Managerial Financial Accounting Assignments P9-7 Solution

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