Kingston Corp

question 143

Essay

Kingston Corp.is considering a new machine that requires an initial investment of $480,000 installed,and has a useful life of 8 years.The expected annual after-tax cash flows for the machine are $89,000 for each of the 8 years and nothing thereafter.
a.Calculate the net present value of the machine if the required rate of return is 11 percent.
b.Calculate the IRR of this project.
c.Should Kingston accept the project (assume that it is independent and not subject to any capital rationing constraint)? Explain your answer.

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Definitions:

Revenue Recognition

Revenue recognition is an accounting principle determining when revenue is earned and can be recorded in the financial statements.

Transaction Price

The price at which a particular transaction is made, affecting the exchange of goods or services between two parties.

Non-current Assets

Assets not expected to be converted into cash, sold, or consumed within one year or the operating cycle, such as property, plant, and equipment.

Long-term Prepayment

Payments made in advance for goods or services to be received or used in future periods, extending beyond the current accounting year.