Harper Electronics is considering investing in manufacturing equipment expected to cost $250,000. The equipment has an estimated useful life of four years and a of $25,000. It is expected to produce incremental cash revenues of $125,000 per year. Harper has an effective income tax rate of 30 percent and a desired rate of return of 10 percent.
Required
Round your financial figures to the nearest dollar and all other figures to two decimal points. a. Determine the and the present value index of the investment, assuming that Harper uses straight-line depreciation for financial and income tax reporting.
b. Determine the and the present value index of the investment, assuming that Harper uses double-declining-balance depreciation for financial and income tax reporting.
c. Why do the s computed in Requirements a and b differ?
d. Determine the and unadjusted rate of return (use average investment), assuming that Harper uses straight-line depreciation.
e. Determine the and unadjusted rate of return (use average investment), assuming that Harper uses double-declining-balance depreciation. (Note: Use average annual cash flow when computing the and average annual income when determining the unadjusted rate of return.)
f. Why are there no differences in the payback periods or unadjusted rates of return computed in Requirements d and e?
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