Economic consideration is being given for a proposal to build out a new business. All capital andoperating costs are in thousands of dollars. Revenue is forecasted for six years and is also inthousands of dollars. Use a 15% minimum discount rate to evaluate the given proposal.Calculate the Net Present Value (NPV), Rate of Return (ROR), Growth Rate of Return (GROR),Present Value Ratio (PVR), and Benefit Cost Ratio (B/C Ratio). Please interpret all your findings.Finally, what time zero capital expense would give you exactly a 15% rate of return?Project Costs and Incomes are shown on the diagram in thousands of $Year01204000-200RevenueCapital CostsOperating CostsBTCF-400-100300-200-20035500-3007000-40058500-5001,0000-600

Answered: Economic consideration is being given…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...

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Economic consideration is being given for a proposal to build out a new business. All capital and
operating costs are in thousands of dollars. Revenue is forecasted for six years and is also in
thousands of dollars. Use a 15% minimum discount rate to evaluate the given proposal.
Calculate the Net Present Value (NPV), Rate of Return (ROR), Growth Rate of Return (GROR),
Present Value Ratio (PVR), and Benefit Cost Ratio (B/C Ratio). Please interpret all your findings.
Finally, what time zero capital expense would give you exactly a 15% rate of return?
Project Costs and Incomes are shown on the diagram in thousands of $
Year
0
1
2
0
400
0
-200
Revenue
Capital Costs
Operating Costs
BTCF
-400
-100
300
-200
-200
3
550
0
-300
700
0
-400
5
850
0
-500
1,000
0
-600

Expert Solution

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The process through which any project's profitability is analyzed and evaluated is recognized as capital budgeting. There are multiple tools employed to determine and decide whether to infuse funds into a project or not. The net present value method, rate of return method, and benefit-cost ratio are some of them. The excess of cash flow's current worth over the initial investment indicates an investment's NPV.

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