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Question 1
Ignore income taxes in this problem.) Purvell Company has just
acquired a new machine. Data on the machine follow:
Purchase cost
$50,000
Annual cost savings
$15,000
Life of the machine
8 years
The company uses straight-line depreciation and a $5,000
salvage value. (The company considers salvage value in making
depreciation deductions.) Assume cash flows occur uniformly
throughout a year.
The simple rate of return would be closest to
Question 2
(Ignore income taxes in this problem.) The Keego Company is
planning a $200,000 equipment investment that has an estimated
five-year life with no estimated salvage value. The company has
projected the following annual cash flows for the investment:
Year
Cash Inflows
1
$120,000
2
60,000
3
40,000
4
40,000
5
40,000
Total
$300,000
Assuming that the cash inflows occur evenly over the year, the
payback period for the investment is _______ years.

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Question 1Ignore income taxes in this problem.) Purvell Comp.docx

  • 1. Question 1 Ignore income taxes in this problem.) Purvell Company has just acquired a new machine. Data on the machine follow: Purchase cost $50,000 Annual cost savings $15,000 Life of the machine 8 years The company uses straight-line depreciation and a $5,000 salvage value. (The company considers salvage value in making depreciation deductions.) Assume cash flows occur uniformly throughout a year. The simple rate of return would be closest to Question 2 (Ignore income taxes in this problem.) The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment: Year Cash Inflows 1 $120,000 2 60,000 3 40,000 4 40,000
  • 2. 5 40,000 Total $300,000 Assuming that the cash inflows occur evenly over the year, the payback period for the investment is _______ years.