# Question: Kopecky Industries Inc is considering allocating a limited amount of

Kopecky Industries Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:

The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.

Instruction

1. Compute the cash payback period for each of the four proposals. Assume that net cash flows are uniform throughout the year.

2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place.

3. Using the following format, summarize the results of your computations in parts (1) and (2). By placing the calculated amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should be accepted for further analysis and which should be rejected.

4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value of $1 table appearing in this chapter. Round to the nearest dollar.

5. Compute the present value index for each of the proposals in part (4). Round to two decimal places.

6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4).

7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). Round to two decimal places.

8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and(7).

The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.

Instruction

1. Compute the cash payback period for each of the four proposals. Assume that net cash flows are uniform throughout the year.

2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place.

3. Using the following format, summarize the results of your computations in parts (1) and (2). By placing the calculated amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should be accepted for further analysis and which should be rejected.

4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value of $1 table appearing in this chapter. Round to the nearest dollar.

5. Compute the present value index for each of the proposals in part (4). Round to two decimal places.

6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4).

7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). Round to two decimal places.

8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and(7).

**View Solution:**## Answer to relevant Questions

Erin Haywood was recently hired as a cost analyst by Wind River Medical Supplies Inc. One of Erin’s first assignments was to perform a net present value analysis for a new warehouse. Erin performed the analysis and ...Delta Air Lines’ SkyMiles program allows frequent flyers to earn credit toward free tickets and other amenities. a. Does Delta Air Lines have a contingent liability for award redemption by its Sky-Miles members? b. When ...Carabiner Co. sold 28,000 annual magazine subscriptions for $40 during December 2012. These new subscribers will receive monthly issues, beginning in January 2013. In addition, the business had taxable income of $130,000 ...According to a summary of the payroll of Apline Publishing Co., $460,000 was subject to the 7.5% FICA tax. Also, $39,000 was subject to state and federal unemployment taxes.a. Calculate the employer’s payroll taxes, using ...Sun Dance Gardens Inc. develops and produces spraying equipment for lawn maintenance and industrial uses. On June 3 of the current year, Sun Dance Gardens Inc. reacquired 28,000 shares of its common stock at $37 per share.a. ...Post your question