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    Return on average investment, Payback, PV & NPV

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    Pack & Carry is debating whether to invest in new equipment to manufacture a line of high-quality
    luggage. The new equipment would cost $1,728,125, with an estimated five-year life and no salvage
    value. The estimated annual operating results with the new equipment are as follows:

    Revenue from sales of new luggage . . . . . . . . . . . . . . . . . . . . . . . . . . . $800,000
    Expenses other than depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $306,250
    Depreciation (straight-line basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,625 651,875
    Increase in net income from the new line . . . . . . . . . . . . . . . . . . . . . . . $148,125

    All revenue from the new luggage line and all expenses (except depreciation) will be
    received or paid in cash in the same period as recognized for accounting purposes. You are
    to compute the following for the investment in the new equipment to produce the new luggage
    line:
    a. Annual cash flows.

    b. Payback period.

    c. Return on average investment.

    d. Total present value of the expected future annual cash inflows, discounted at an annual rate of
    10 percent.

    e. Net present value of the proposed investment discounted at 10 percent.

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    https://brainmass.com/business/accounting/return-average-investment-payback-pv-npv-628217

    Solution Summary

    The solution computes Annual Cash Flows, Return on average investment, Payback period, PV and NPV.

    $2.19

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