A company is considering a capital investment of $200,000 in new equipment. It is expected to have useful life of 10 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash inflows are expected to be $11,000 and $31,000, respectively. This company requires either a 10% cost of capital "hurdle'rate, or a payback period of 7 years.

Compute the (a) cash payback period, (b) net present value, and (c) annual rate of return. State whether the project should be accepted or rejected for each of these techniques.

Present Value of an Annuity of 1

(n)
Periods 5% 6% 8% 9% 10% 11% 12% 15%
10 7.72173 7.36009 6.71008 6.41766 6.14457 5.88923 5.65022 5.01877

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Hmm... still trying to figure out what a nose surgeon has to do with accounting. I'll look that one in my advanced book.

Morgaine - check out the chapter on business scalabilty - may be something there.

Lol