1. The capital investment committee of Taiwan Semiconductor Company is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows: 1 2 3 4 Year 5 Total Lithography Machine Income from Operations $26,000 21,000 7,000 4,000 1,450 $59,450 Problem 1 Instructions Net Cash Flow a. Compute the following: i. ii. $41,000 35,000 22,500 18,000 16,150 $132,650 Photoresist Machine Income from Operations $12,250 12,250 12,250 12,250 12,250 $61,250 Net Cash Flows Each project requires an investment of $75,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis. $25,250 25,250 25,250 25,250 25,250 $126,250 The average rate of return for each investment. The net present value for each investment. Use the present value of $1 table appearing in this chapter (Exhibit 2). (Round present values to the nearest dollar.) b. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. (Minimum two full paragraphs.)
1. The capital investment committee of Taiwan Semiconductor Company is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows: 1 2 3 4 Year 5 Total Lithography Machine Income from Operations $26,000 21,000 7,000 4,000 1,450 $59,450 Problem 1 Instructions Net Cash Flow a. Compute the following: i. ii. $41,000 35,000 22,500 18,000 16,150 $132,650 Photoresist Machine Income from Operations $12,250 12,250 12,250 12,250 12,250 $61,250 Net Cash Flows Each project requires an investment of $75,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis. $25,250 25,250 25,250 25,250 25,250 $126,250 The average rate of return for each investment. The net present value for each investment. Use the present value of $1 table appearing in this chapter (Exhibit 2). (Round present values to the nearest dollar.) b. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. (Minimum two full paragraphs.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:### Problem 1
The capital investment committee of Taiwan Semiconductor Company is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows:
#### Investment Details:
**Lithography Machine**
| Year | Income from Operations | Net Cash Flow |
|------|------------------------|---------------|
| 1 | $26,000 | $41,000 |
| 2 | $21,000 | $35,000 |
| 3 | $7,000 | $22,500 |
| 4 | $4,000 | $18,000 |
| 5 | $1,450 | $16,150 |
| **Total** | **$59,450** | **$132,650** |
**Photoresist Machine**
| Year | Income from Operations | Net Cash Flows |
|------|------------------------|----------------|
| 1 | $12,250 | $25,250 |
| 2 | $12,250 | $25,250 |
| 3 | $12,250 | $25,250 |
| 4 | $12,250 | $25,250 |
| 5 | $12,250 | $25,250 |
| **Total** | **$61,250** | **$126,250** |
#### Additional Information:
- Each project requires an investment of $75,000.
- Straight-line depreciation will be used, and no residual value is expected.
- The committee has selected a rate of 12% for purposes of the net present value analysis.
### Instructions:
**a. Compute the following:**
1. The average rate of return for each investment.
2. The net present value for each investment using the present value of $1 table (Exhibit 2). Round present values to the nearest dollar.
**b. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. (Minimum two full paragraphs.)**
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