Ch 25 - Capital Investment Problem Bradley company is looking into investing in the purchase of a new building for $250,000. The building is expected to have a 10-year life with $30,000 salvage value. Annual net cash flows are expected to be $60,000 and Net Income is expected to be $40,000. The company's required rate of return is 12%. Using the information above, compute the following (round all answers to 1 decimal place): Calculate the Cash Payback Period Calculate the Net Present Value Compute the NPV of another similar building with a cost of $300,000, with 10-year life, salvage value of $20,000, which can generate $65,000 in annual cash flows, compute the profitability index of the two buildings. Compute the Profitability Index of both buildings and state which building is a better investment and why? Compute the Annual Rate of Return, assuming the company uses Straight-Line depreciation The company accepts investments with Cash Payback period of less than the half of the useful life, Positive NPV, and an Annual Rate of Return greater than 25%. Should the investment be accepted? Yes or No, and explain why for each method used Show all calculations for each item step-by-step

Ch 25 - Capital Investment Problem Bradley company is looking into investing in the purchase of a new building for $250,000. The building is expected to have a 10-year life with $30,000 salvage value. Annual net cash flows are expected to be $60,000 and Net Income is expected to be $40,000. The company's required rate of return is 12%. Using the information above, compute the following (round all answers to 1 decimal place): Calculate the Cash Payback Period Calculate the Net Present Value Compute the NPV of another similar building with a cost of $300,000, with 10-year life, salvage value of $20,000, which can generate $65,000 in annual cash flows, compute the profitability index of the two buildings. Compute the Profitability Index of both buildings and state which building is a better investment and why? Compute the Annual Rate of Return, assuming the company uses Straight-Line depreciation The company accepts investments with Cash Payback period of less than the half of the useful life, Positive NPV, and an Annual Rate of Return greater than 25%. Should the investment be accepted? Yes or No, and explain why for each method used Show all calculations for each item step-by-step

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 12PROB

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