Grey Inc Is Considering Purchasing a Machine for $50,000, Which Is

question 133

Essay

Grey Inc. is considering purchasing a machine for $50,000, which is expected to generate an annual after-tax income of $10,000; this machine is to be depreciated over 5 years with no residual value.
Required:
1. Under the assumption that cash inflows occur evenly throughout the year, what is the payback period for this machine? (Round answer to one decimal place.)
2. Based on the initial investment outlay, what is the anticipated accounting rate of return (ARR) on this investment, rounded to one decimal place?
3. What is the anticipated internal rate of return (IRR) on this investment? (Note: To answer this question, you will need to have access to Excel or the present value tables presented as Appendix C to Chapter 12.)
4. Assume a discount rate (i.e., cost of capital) of 15%:
(a) What is the modified rate of return (MIRR) on this investment, under the assumption that the interim cash inflows can be reinvested at an estimated rate of 15%? (Note: To answer this question, you will need access to Excel.) Round answer to nearest whole number.
(b) What is the MIRR of the project under the assumption that the interim cash flows can be reinvested at a rate of 28.65%? (Note: To answer this question, you will need access to Excel.)

Comprehend the factors affecting elasticity (e.g., availability of substitutes, necessity versus luxury) and their economic implications.

Grasp the concepts of income elasticity of demand and cross-price elasticity of demand and how they relate to goods being normal, inferior, substitutes, or complements.

Analyze the effects of elasticity on total revenue and expenditure.

Understand the concept of price elasticity of supply and its determinants.

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Definitions:

Real GDP

Gross Domestic Product adjusted for inflation, providing a more accurate reflection of an economy's size and how it's grown over time.

Economic Welfare

The overall well-being and standard of living of people within an economy, often measured by indicators like income, health, and education.

Net Private Domestic Investment

The total amount spent by businesses and firms in the economy on capital goods, minus depreciation.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.