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# Iverson Company: Straight-Line Depreciation

Iverson Company is considering the purchase of a new machine. It will cost \$270,000, last for 8 years, and have a zero terminal salvage value at the end of that time. If purchased, the machine is expected to increase revenues by \$250,000 per year, but additional cash outlays to operate the machine will equal \$200,000 per year.

Use straight-line depreciation and ignore income taxes.

Compute:
a. Net present value if the minimum desired rate of return is 10%

b. Payback period

c. Accounting rate of return using initial investment

#### Solution Preview

See the attached file for proper formatting.

Cost of new Equipment \$270,000.00
First year sales \$250,000.00
Annual Increase in sales 0%
Operating expenses-First Year \$200,000
Annual Increase in Expenses 0%
Salvage Value 0
Life of plant 8 years
Required rate of return 10%
Tax Rate 0%

Cash Flow ...

#### Solution Summary

The net present value, payback period, and accounting rate of return is calculated for Iverson Company.

\$2.19