Depreciation

Income before Taxes $352,500

Without Depreciation
$700,000 (Income before tax + depreciation) $175,000 $525,000

Taxes at 25% Net Income

$88,125 $264,375

 The

NPV shows for this task shows Positive value of $8,062. Total investment ($3,048,062-$3,040,000). NPV indicates long term potential value on investments. Positive NPV makes it a good investment option.

 IRR

was calculated as 12.072%. Indicating for an investor 12.072% return on investment. Making this an attractive investment option as this is a high rate of return. I would recommend in investing in the company due to solid positive return on investment percentage. Since IRR is used to measure investment efficiency.

ARR Based on Operating Income Uses book value of investments

Included accruals. Measures worth of Company in given year Average annual income divided by initial investment

IRR Based on Cash flow Measures success in profitability for long term investments.
Interest rate is the break-even point IRR is more complex to calculate than ARR. Takes time value of money into account.

ARR and IRR measure different things in effect having to different percentage values even though they evaluate the same investment. ARR tends to have a higher percentage rate because it does calculate all aspects. IRR tends to be the more accurate percentage of the two for this fact.

 Payback

period is the time it takes a business to pay back initial investment. In this case it will take the business approximately 5 years and 2 months to pay off the initial investment 30,40,000. With retirement plans in 9 years the owner will have paid back his investment in plenty of time. This is a simple way to evaluate the investment, it does not consider time value.

 This

calculation is used to determine the present value discount factor. Which allows an investor to find the break even point.

 Calculation

used to find the IRR. Any IRR over zero indicated a positive investment opportunity. An investment is with a higher IRR than a WACC it is an attractive investment option.