Chee Company has gathered the following data on a proposed investment project:
Investment required in equipment…………. $320,000
Annual cash inflows…………………………….
Year 1: $50,000
Year 2: 50,000
Year 3: 60,000
Year 4: 40,000
Year 5: 65,000
Year 6: 50,000
Year 7: 70,000
Year 8: 65,000
Salvage value……………………………………… $60,000
Life of the investment………………………….. 8 years
Required rate of return………………………… 10%
Assets will be depreciated using straight
line depreciation method
Required:
1. Show all calculations in good form. Answers without supporting calculations will earn zero marks.
2. Calculate the annual incremental net income for all eight (8) years.
3. Using the net present value and the internal rate of return methods, is this a good investment?
