The Ziggy Trim and Cut Company Can Purchase Equipment on Sale

question 30

Essay

The Ziggy Trim and Cut Company can purchase equipment on sale for $4,300.The asset has a three-year life,will produce a cashflow of $1,200 in the first and second year,and $3,000 in the third year.The interest rate is 12%.Calculate the project's discounted payback and Profitability Index assuming end of year cash flows.Should the project be taken? If the accounting rate of return was positive,how would this affect your decision?

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Definitions:

Trade Receivables

Sums due to a business from its customers for goods or services provided on credit.

Notes Receivable

Represents amounts owed to a company that are evidenced by formal agreements or promissory notes.

Interest Revenue

Interest revenue is the income earned from lending funds or depositing funds in interest-bearing accounts.

Journalize Transactions

The process of recording financial transactions in a company's journal, marking the first step in the accounting cycle.