Reference no: EM132774353

Question - ABC Company is considering the purchase of a new machine that would cost $500,000. The machine would have a useful life of 10 years. ABC Company plans on using straight-line depreciation with an estimated salvage value of $0. ABC Company has a hurdle rate of 10% and is subject to an income tax rate of 40%. The annual cash income is estimated to be $125,000.

1. The Accounting Rate of Return (AROR) is:

A. 7%

B. 8%

C. 9%

D. 10%

2. The Net Present Value (NPV) is:

A. $63,775

B. $73,775

C. $83,775

D. $93,775

3. The Profitability Index (PI) is:

A. 1.17

B. 1.27

C. 1.37

D. 1.47

4. The Payback period is:

A. 5.263 years

B. 6.263 years

C. 7.263 years

D. 8.263 years

5. Using interpolation, the Internal Rate of Return (IRR) is:

A. 10.78%

B. 11.78%

C. 12.78%

D. 13.78%