The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Year Robotic Assembler Operating Income Robotic Assembler Net Cash Flow Warehouse Operating Income Warehouse Net Cash Flow 1 $55,000 $171,000 $116,000 $274,000 2 55,000 171,000 88,000 231,000 3 55,000 171,000 44,000 162,000 4 55,000 171,000 19,000 111,000 5 55,000 171,000 8,000 77,000 Total $275,000 $855,000 $275,000 $855,000   Each project requires an investment of $500,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1a.  Compute the average rate of return for each investment. If required, round your answer to one decimal place. Investment Committee Average Rate of Return Robotic Assembler % Warehouse %   1b.  Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value. Line Item Description Robotic Assembler Warehouse Present value of net cash flow $fill in the blank 3 $fill in the blank 4 Amount to be invested fill in the blank 5 fill in the blank 6 Net present value $fill in the blank 7 $fill in the blank 8

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows:

Year Robotic Assembler
Operating Income
Robotic Assembler
Net Cash Flow
Warehouse
Operating Income
Warehouse
Net Cash Flow
1 $55,000 $171,000 $116,000 $274,000
2 55,000 171,000 88,000 231,000
3 55,000 171,000 44,000 162,000
4 55,000 171,000 19,000 111,000
5 55,000 171,000 8,000 77,000
Total $275,000 $855,000 $275,000 $855,000

 

Each project requires an investment of $500,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis.

Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162

Required:

1a.  Compute the average rate of return for each investment. If required, round your answer to one decimal place.

Investment Committee Average Rate of Return
Robotic Assembler %
Warehouse %

 

1b.  Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value.

Line Item Description Robotic Assembler Warehouse
Present value of net cash flow $fill in the blank 3 $fill in the blank 4
Amount to be invested fill in the blank 5 fill in the blank 6
Net present value $fill in the blank 7 $fill in the blank 8
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