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Question

Toya Company plans to buy equipment at a cost of Rs 5,000,000 that is expected to save Rs 1,150,000 in cash

operating costs per year. Its estimated useful life is 10 years, and it will have no terminal disposal value. The required rate of return is 14%. Ignore income tax issues.

Required

Compute the following:

  1. Net present value
  2. Payback period
  3. Internal rate of return
  4. Accrual accounting rate of return based on net initial investment I assume straight-line depreciation)

Present value table

Periods          2%     4%     6%     8%     10%   12%   14%   16%   18%   20%   

9                     8.162  7.435  6.802  6.247  5.759  5.328  4.946  4.607  4.303  4.031

10                   8.983  8.111  7.360  6.710  6.145  5.650  5.216  4.833  4.494  4.192

11                   9.787  8.760  7.887  7.139  6.495  5.938  5.453  5.029  4.656  4.327

Top Answer

A.NPV =2716500 B. Payback period 4.34... View the full answer

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