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: Lithography Machine Photoresist Machine Year Income from Operations Net Cash Flow Income from Operations Net Cash Flows 1 $26,000 $41,000 $12,250 $25,250 2 21,000 35,000 12,250 25,250 3 7,000 22,500 12,250 25,250 4 4,000 18,000 12,250 25,250 5 1,450 16,150 12,250 25,250 Total $59,450 $132,650 $61,250 $126,250 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. Compute the following: 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.) Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. (Minimum two full paragraphs.)
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: Lithography Machine Photoresist Machine Year Income from Operations Net Cash Flow Income from Operations Net Cash Flows 1 $26,000 $41,000 $12,250 $25,250 2 21,000 35,000 12,250 25,250 3 7,000 22,500 12,250 25,250 4 4,000 18,000 12,250 25,250 5 1,450 16,150 12,250 25,250 Total $59,450 $132,650 $61,250 $126,250 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. Compute the following: 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.) Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. (Minimum two full paragraphs.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- 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:
|
|
Lithography Machine |
Photoresist Machine |
||
|
Year |
Income from Operations |
Net Cash Flow |
Income from Operations |
Net Cash Flows |
|
1 |
$26,000 |
$41,000 |
$12,250 |
$25,250 |
|
2 |
21,000 |
35,000 |
12,250 |
25,250 |
|
3 |
7,000 |
22,500 |
12,250 |
25,250 |
|
4 |
4,000 |
18,000 |
12,250 |
25,250 |
|
5 |
1,450 |
16,150 |
12,250 |
25,250 |
|
Total |
$59,450 |
$132,650 |
$61,250 |
$126,250 |
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
- Compute the following:
- 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.)
- 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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