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ADMS 2510 (64)
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Lecture

Week11 Tutorial Question Solution.docx

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Department
Administrative Studies
Course
ADMS 2510
Professor
Li Zha Ma
Semester
Winter

Description
Exercise 13­11 (15 minutes) 1. The payback period would be: Payback Period =   Investment required Net annual cash inflow $180,000 =  $37,500 per year  =  4.8 years No, the equipment would not be purchased, since the 4.8­year payback period exceeds  the company’s maximum 4­year payback period. 2. The simple rate of return would be computed as follows: Annual cost savings...............................................$37,500............ Less annual depreciation ($180,000 ÷ 12 years).................... 15,0 0 Annual incremental operating income..............................$22,500. Annual incremental operating income Simple rate of return =   Initial investment $22,500 =    =  12.5% $180,000 The equipment would not be purchased since its 12.5% rate of return is less than the  company’s 14% required rate of return. Problem 13­21 (30 minutes) 1. Average weekly use of the washers and dryers would be: $1,800 Washers:  $1.50 per use  =  1,200 uses Dryers:     $1,125  =  1,500 uses $0.75 per use The expected net annual cash receipts would be: Washer cash receipts ($1,800 × 52).................. $ 93,600 Dryer cash receipts ($1,125 × 52)......................  58,500   Total cash receipts............................................ 152,100 Less cash disbursement
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