Uncle Ben saved $800,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $600,000. The following table presents the estimated cash inflows for the two alternatives. Year 1 Year 2 Year 3 Year 4 Opportunity # 1 $178,000 $188,000 $252,000 $324,000 Opportunity # 2 328,000 348,000 56,000 48,000 Uncle Ben decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent. Answer the questions: 1. Compute for the Accounting Rate of Return of opportunity #1. 2. Compute for the Accounting Rate of Return of opportunity #2. 3. Compute for the Internal Rate of Return of opportunity #1.

Uncle Ben saved $800,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $600,000. The following table presents the estimated cash inflows for the two alternatives. Year 1 Year 2 Year 3 Year 4 Opportunity # 1 $178,000 $188,000 $252,000 $324,000 Opportunity # 2 328,000 348,000 56,000 48,000 Uncle Ben decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent. Answer the questions: 1. Compute for the Accounting Rate of Return of opportunity #1. 2. Compute for the Accounting Rate of Return of opportunity #2. 3. Compute for the Internal Rate of Return of opportunity #1.

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 8E

See similar textbooks

Similar questions

Daryl Kearns saved $270,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $190.500 The following table presents the estimated cash inflows for the two alternatives: Opportunity #1 Opportunity #2 Year 1 $ 55,650 104,100 Year 2 $58,890 109,450 Year 3 $78,840 17,100 Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 10 percent. PV of $1 and PXA of 5) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of each opportunity. Which should Mr. Keams adopt based on the net present value approach? b. Compute the payback period for each opportunity. Which should Mr. Kearns adopt based on the…
Uncle Ben saved $800.000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $600.000. The following table presents the estimated cash inflows for the two alternatives. Year 1 Year 2 Year 3 Year 4 Opportunity # 1 $178,000 $188,000 $252,000 $324,000 Opportunity # 2 328,000 348,000 56,000 48,000 Uncle Ben decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent. Find: Payback Period Modified Payback Period Net Present Value Profitability Index Accounting Rate of Return Internal Rate of Return
Uncle Ben saved $800.000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $600.000. The following table presents the estimated cash inflows for the two alternatives. Year 1 Year 2 Year 3 Year 4 Opportunity # 1 $178,000 $188,000 $252,000 $324,000 Opportunity # 2 328,000 348,000 56,000 48,000 Uncle Ben decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent. Answer this question: Compute for the Net Present Value of opportunity #1. Compute for the Profitability Index of opportunity #1 Compute for the Net Present Value of opportunity #2 Compute for the Profitability Index of opportunity…
Uncle Ben saved $800,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $600,000. The following table presents the estimated cash inflows for the two alternatives. Year 1 Year 2 Year 3 Year 4 Opportunity # 1 $178,000 $188,000 $252,000 $324,000 Opportunity # 2 328,000 348,000 56,000 48,000 Uncle Ben decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent. Answer the questions: 1. Compute for the Accounting Rate of Return of opportunity #1. 2. Compute for the Accounting Rate of Return of opportunity #2. 3. Compute for the Internal Rate of Return of opportunity #1. 4. Compute for the Internal Rate of Return of opportunity #2.
Daryl Kearns saved $250,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by Investing his savings wisely and is currently considering two Investment opportunities. Both Investments require an initial payment of $183,000. The following table presents the estimated cash inflows for the two alternatives: Opportunity #1 Opportunity #2 Year 1 $ 55,630 104,100 Year 2 $ 58,820 109,450 Year 3 $78,930 17,100 Mr. Keams decides to use his past average return on mutual fund Investments as the discount rate: It is 8 percent. (PV of $) and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Opportunity 1 Opportunity 2 Which opportunity should be chosen? a. Compute the net present value of each opportunity. Which should Mr. Kears adopt based on the net present value approach? b. Compute the payback period…
Daryl Kearns saved $300,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $191,000. The following table presents the estimated cash inflows for the two alternatives: Opportunity #1 Opportunity #2 Year 1 $ 55,655 104,400 Year 2 $ 58,910 109, 650 Year 3 $78,900 18,300 Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Required A Required B a. Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? b. Compute the payback period for each opportunity. Which should Mr.…
Daryl Kearns saved $270,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $189,000. The following table presents the estimated cash inflows for the two alternatives: Year 2 $ 58,900 Year 1 Year 3 Year 4 Opportunity #1 Opportunity #2 $ 55,650 103,900 $78,940 17,900 $101,280 14,800 108,850 Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? b. Compute the payback period for each opportunity. Which should Mr.…
Daryl Kearns saved $220,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $190,000. The following table presents the estimated cash inflows for the two alternatives: Year 1 $ 55,670 104,000 Year 2 Year 3 Year 4 Opportunity #1 Opportunity #2 $ 58,930 109,700 $78,750 18,200 $101,400 15,200 Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? Compute the payback period for each opportunity. Which should Mr.…
Daryl Kearns saved $240,000 during the 30 years that he worked for a major corporation. Now he has retired at the age of 60 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $160,000. The following table presents the estimated cash inflows for the two alternatives: Year 4 $80,000 Year 1 Year 2 Year 3 Opportunity #1 Opportunity #2 $44,000 81,600 $47,200 $63,200 86,400 16,000 16,000 Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? b. Compute the payback period for each opportunity. Which should Mr. Kearns…
Jack Walter recognizes the value of saving part of his income. He has set a goal to have $15,000 in cash available for emergencies. Assume he invests semiannually to have $15,000 in five years and the sinking fund he has selected pays 8% annually, compounded semiannually. Find the total interest earned on the sinking fund using the given table. E Click the icon to view the table. The total interest earned will be S . (Round to the nearest cent as needed.)
I. A house owner decided to renovate his property in 7 years where he will be paying 50,000 for the renovation. To prepare for this amount, he set four equal annual payments now. No further payments are made after 4 years. If money is worth 12% per annum, what annual payment is necessary? Show Cash Flow Diagram II. As a member, Mr. Dela Cruz will deposit P300 with a savings and loan organization at the beginning of each 3 months for 12 years. If the organization pays interest at the rate of 1.4.% per 3 months. Find the sum to his credit just after the last deposit. Show Cash Flow Diagram
2. You invest $12,000 a year in to a retirement fund starting at age 25 and continue to do so until the age of 55. You also plan to increase the investment by $1000 each year starting when you are 37 ($13,000), 38 ($14,000) through age 55. You plan to retire at age 65 with $1,000,000 in your retirement account. a. Created the needed cash flow diagram b. What average annual interest rate (nearest 2%) must your retirement account produce? Do you think this interest rate is reasonable for your retirement planning? c. Is it reasonable to increase your contribution $1,000 a year starting at age 37 through age 55? What would your contribution be per year at age 55? d. What would happen if you retired at 60 instead of 65? Solve the problem using an Excell spreadsheet.