Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $60,000 $120,000 2 50,000 110,000 3 45,000 105,000 4 30,000 90,000 5 20,000 80,000 $205,000 $505,000 The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below: Year Present Value of $1 at 12% 1 0.893 2 0.797 3 0.712 4 0.636 5 0.567 a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places. fill in the blank 1 % b. Determine the net present value. $ fill in the blank 2

Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $60,000 $120,000 2 50,000 110,000 3 45,000 105,000 4 30,000 90,000 5 20,000 80,000 $205,000 $505,000 The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below: Year Present Value of $1 at 12% 1 0.893 2 0.797 3 0.712 4 0.636 5 0.567 a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places. fill in the blank 1 % b. Determine the net present value. $ fill in the blank 2

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 6CE

See similar textbooks

Similar questions

BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $75,000 $285,000 2 102,000 290,000 3 109,500 190,000 4     36,000   125,000 $322,500 $890,000 The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for Years 1 through 4 is 0.893, 0.797, 0.712, and 0.636, respectively. Determine the following: a. The average rate of return on investment, including the effect of depreciation on the investment. % b. The net present value. Enter negative values as negative numbers.
Santana Co. is evaluating a project requiring a capital expenditure of $790,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $ 75,000 $280,000 2 100,000 300,000 3 109,000 200,000 4     36,000   120,000 $320,000 $900,000 The company's minimum desired rate of return is 9%. The present value of $1 at compound interest of 9% for 1, 2, 3, and 4 years is 0.9174, 0.8417, 0.7722, and 0.7084 respectively. Determine the net present value of the project. Should Santana proceed?
BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $75,000        $285,000        2 102,000        290,000        3 109,500        190,000        4 36,000        125,000        $322,500        $890,000        The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively. Determine the following: a. The average rate of return on investment, including the effect of depreciation on the investment. % b. The net present value. Enter negative values as negative numbers. $
June Co. is evaluating a project requiring a capital expenditure of $620,000. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $45,000 $200,000 2 85,000 240,000 3 5,000 160,000 4 15,000 170,000 $150,000 $770,000 The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively. a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answers to two decimal places.fill in the blank 1 % b. Determine the net present value.$fill in the blank 2
Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1. $60,000 $120,000 2 50,000 110,000 3 45,000 105,000 4 30,000 90,000 20,000 80,000 $205,000 $505,000 The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below: Present Value Year of $1 at 12% 1 0.893 2 0.797 3 0.712 4 0.636 5 0.567 a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places. % b. Determine the net present value. 72,190
June Co. is evaluating a project requiring a capital expenditure of $620,000. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project as follows: Year Net Income Net Cash Flow 1 $45,000 $200,000 85,000 240,000 3 5,000 160,000 4 15,000 170,000 $150,000 $770,000 The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively. a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answers to two decimal places. 12 x % b. Determine the net present value. 6.05 X
Crane's Custom Construction Company is considering three new projects, each requiring an equipment investment of $27,280. Each project will last for 3 years and produce the following net annual cash flows. Year AA BB CC 1 $8,680 $12,400 $16,120 2 11,160 12,400 14,880 3 14,880 12,400 13,640 Total $34,720 $37,200 $44,640 The equipment's salvage value is zero, and Crane uses straight-line depreciation. Crane will not accept any project with a cash payback period over 2 years. Crane's required rate of return is 12%. Click here to view PV table. (a) Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.) AA BB BB years years CC years
Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Cost of equipment required Working capital investment required. Annual cash inflows $ 155,000 Project B $ 0 $ 0 $ 155,000 Salvage value of equipment in six years $ 25,000 $ 8,600 $ 40,000 Life of the project 6 years $ 0 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would…
CJN Corporation is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four years with no residual value at the end of the four years. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $ 75,000 $285,000 2 102,000 290,000 3 109,500 190,000 4 36,000 125,000 $322,500 $890,000 The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is: .893, .797, .712, and .636, respectively. Determine: (a) the average rate of return on investment, and (b) the net present value. (a) (b)
CJN Corporation is evaluating a project requiring a capital expenditure of $725,650. The project has an estimated life of four years with no residual value at the end of the four years. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $ 75,000 $285,000 2 102,000 290,000 3 109,500 190,000 4 36,000 125,000 $322,500 $890,000 The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is: .893, .797, .712, and .636, respectively. Round all answers to two decimal places. Determine: (a) the average rate of return on investment, and (b) the net present value. (a) (b)
Perit Industries has $115,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project B Cost of equipment required $ 115,000 $ 0 Working capital investment required $ 0 $ 115,000 Annual cash inflows $ 21,000 $ 69,000 Salvage value of equipment in six years $ 8,700 $ 0 Life of the project 6 years 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries’ discount rate is 15%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment…
Perit Industries has $220,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project B Cost of equipment required $220,000 $0 Working capital investment required $0 $220,000 Annual cash inflows $31,000 $53,000 Salvage value of equipment in six years $9,200 $0 Life of the project 6 years 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries’ discount rate is 15%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if…