The Zero Machine Company Is Evaluating a Capital Expenditure Proposal

question 138

Essay

The Zero Machine Company is evaluating a capital expenditure proposal that requires an initial
investment of $20,960 and has predicted cash inflows of $5,000 per year for 10 years.It will have no
salvage value.Required:
a.Using a required rate of return of 16%, determine the net present value of the investment proposal.
b.Determine the proposals internal rate of return.

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Definitions:

Depletion

An accounting approach used to allocate the cost of extracting natural resources, such as minerals, oil, and gas, over the period those resources are extracted and sold.

Coal Company

A business entity engaged in the extraction, processing, and selling of coal as an energy source or raw material.

Salvage Value

The anticipated remaining value of an asset once it has completed its functional lifespan, typically taken into account in computations of depreciation.

Natural Resources

Assets that come from the Earth and are used to produce goods and services, such as timber, oil, and minerals.