accounting

Batelco Inc. is considering two mutually exclusive projects A and B. Each project requires an initial investment as presented in the below table. The economic life of the project A will be 5-Year's and Project B will be 6 years, and both projects carry same risk. Batelco Inc uses a discount rate of 12%. After considering the current economic situation Batelco Inc. has set a maximum payback period of 4 years and minimum return on investment (ROI) 18%. A financial analyst, prepared estimates of the annual revenues and costs associated with each project as in the below table: Projects B Projects A 240,000 470,000 80,000 60,000 Cost of equipment Working Capital needed Overhaul of the equipment in two years 12000 14000 Annual revenues and costs: Sales revenues 375,000 300,000 Variable expenses 180,000 90,000 Depreciation expense 48,000 78,333 Fixed out-of-pocket operating 90,000 70,000 costs Life of Project 5 year 6 years The working capital will be released 5th and 6th year of the project A and project B respectively, for investment elsewhere within the company. Required: 1. Calculate the net present value for each project. (4 Marks) 2. Calculate the simple rate of return for each product. (4 Marks) 3. Which of the two projects (if either) would you recommend that Batelco Inc. accept? Why? (2 Mark) Present value tables are given below to determine the appropriate discount factor(s) using the tables provided. lod Present value tables are given below to determine the appropriate discount factor(s) using the tables provided Table of present value $1 616 6% 7% 8% 10% 11% Period T 4% 0.962 5% 0917 0.962 0943 0.935 0.926 6.000 0.001 2 0.025 0.007 0.000 0.873 0.857 0842 0.826 0812 0880 0.864 0.840 0.816 0.794 0772 0.751 0.731 0.855 0823 0.792 0763 0.735 0.708 0.683 0.650 0.822 0.784 0.747 0.713 0,001 0.000 0:621 0.593 0.790 0.745 0.705 0.666 0.630 0.596 0.564 9.535 0.711 0.665 0.623 0.583 0.547 0513 0.482 0.677 0.627 0.582 0540 0.502 0.467 0.434 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.614 0.568 0.508 0.463 0.422 0.386 Table For the Present Value of an Ordinary Annuity of $1 4% 5% 6% 0.962 0.952 0.943 1.886 1.859 1.833 2.775 2.723 2.673 3.630 3.546 3.465 4.452 4.330 4.212 5.242 5.076 4.917 6.002 5.786 5.582 6.733 6.463 6.210 7.435 7.108 6802 MacBook Air 4 5 6 7 a 9 10 1% 0,990 1.970 2.941 3.902 4.853 5.796 6.728 7.652 8.566 0.760 0.731 0.703 0.676 2% 0.980 1.942 2.884 3.808 4.714 5.601 6,472 7.326 8.162 3% 0.971 1.914 2.829 3.717 4.580 5.417 6.230 7.020 7.786 0.352 8% 12% 0803 6.791 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.926 1.783 2.577 3.312 3.993 4.623 5,206 5.747 6.247 13% 0885 0.783 0.653 0613 0.543 0.480 0425 0.376 0.333 0295 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 14% 53877 0.769 0.675 0592 0.019 0.456 0400 T 0.351 0.306 0270 15% GATO 6.754 12% 0.893 1.691 2.402 3.037 0868 0.572 GAUT 3.605 4.111 0.432 75 0.376 4.564 0.327 0264 4.968 15.328 0.247 19 8 15 10 11 12 13 14 Period 12 1% 0.990 1.970 2041 0.002 4.853 5.790 6.728 7.662 8.566 9471 10.368 11.256 12.134 13.004 13.865 2% 0.980 1.942 2.004 3.000 4,714 5.601 6.472 7.326 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13% 0.971 1.914 2.829 3.717 4.500 5.417 6,230 7,020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 Table For the Present Value of an Ordinary Annuity of $1 4% 5% 6% 0.002 0.962 0.943 1.886 1.850 2.775 2.723 3.630 3.546 4.452 4.330 5.242 5.076 6.002 5.780 6.733 6.463 7.435 7.108 8.111 7.722 8.761 8.306 9.385 8.863 9.986 9.394 10.563 9,899 11.118. 10.380 1.833 2.673 3465 4.212 4.017 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 8% 0926 1.783 2.577 3312 3.903 4.023 5.200 5.747 6247 6.710 7.139 7.536 7,904 8.244 8.560 10% 0.909 173 2.487 3.170 3.791 4.300 4.800 6.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 12% 0803 1.601 12.402 13.037 3.005 4.111 4.564 4.968 5.328 5.650 5.935 6.194 6.424 6.628 6.811 Batelco Inc. is considering two mutually exclusive projects A and B. Each project requires an initial investment as presented in the below table. The economic life of the project A will be 5-Year's and Project B will be 6 years, and both projects carry same risk. Batelco Inc uses a discount rate of 12%. After considering the current economic situation Batelco Inc. has set a maximum payback period of 4 years and minimum return on investment (ROI) 18%. A financial analyst, prepared estimates of the annual revenues and costs associated with each project as in the below table: Projects B Projects A 240,000 470,000 80,000 60,000 Cost of equipment Working Capital needed Overhaul of the equipment in two years 12000 14000 Annual revenues and costs: Sales revenues 375,000 300,000 Variable expenses 180,000 90,000 Depreciation expense 48,000 78,333 Fixed out-of-pocket operating 90,000 70,000 costs Life of Project 5 year 6 years The working capital will be released 5th and 6th year of the project A and project B respectively, for investment elsewhere within the company. Required: 1. Calculate the net present value for each project. (4 Marks) 2. Calculate the simple rate of return for each product. (4 Marks) 3. Which of the two projects (if either) would you recommend that Batelco Inc. accept? Why? (2 Mark) Present value tables are given below to determine the appropriate discount factor(s) using the tables provided. lod Present value tables are given below to determine the appropriate discount factor(s) using the tables provided Table of present value $1 616 6% 7% 8% 10% 11% Period T 4% 0.962 5% 0917 0.962 0943 0.935 0.926 6.000 0.001 2 0.025 0.007 0.000 0.873 0.857 0842 0.826 0812 0880 0.864 0.840 0.816 0.794 0772 0.751 0.731 0.855 0823 0.792 0763 0.735 0.708 0.683 0.650 0.822 0.784 0.747 0.713 0,001 0.000 0:621 0.593 0.790 0.745 0.705 0.666 0.630 0.596 0.564 9.535 0.711 0.665 0.623 0.583 0.547 0513 0.482 0.677 0.627 0.582 0540 0.502 0.467 0.434 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.614 0.568 0.508 0.463 0.422 0.386 Table For the Present Value of an Ordinary Annuity of $1 4% 5% 6% 0.962 0.952 0.943 1.886 1.859 1.833 2.775 2.723 2.673 3.630 3.546 3.465 4.452 4.330 4.212 5.242 5.076 4.917 6.002 5.786 5.582 6.733 6.463 6.210 7.435 7.108 6802 MacBook Air 4 5 6 7 a 9 10 1% 0,990 1.970 2.941 3.902 4.853 5.796 6.728 7.652 8.566 0.760 0.731 0.703 0.676 2% 0.980 1.942 2.884 3.808 4.714 5.601 6,472 7.326 8.162 3% 0.971 1.914 2.829 3.717 4.580 5.417 6.230 7.020 7.786 0.352 8% 12% 0803 6.791 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.926 1.783 2.577 3.312 3.993 4.623 5,206 5.747 6.247 13% 0885 0.783 0.653 0613 0.543 0.480 0425 0.376 0.333 0295 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 14% 53877 0.769 0.675 0592 0.019 0.456 0400 T 0.351 0.306 0270 15% GATO 6.754 12% 0.893 1.691 2.402 3.037 0868 0.572 GAUT 3.605 4.111 0.432 75 0.376 4.564 0.327 0264 4.968 15.328 0.247 19 8 15 10 11 12 13 14 Period 12 1% 0.990 1.970 2041 0.002 4.853 5.790 6.728 7.662 8.566 9471 10.368 11.256 12.134 13.004 13.865 2% 0.980 1.942 2.004 3.000 4,714 5.601 6.472 7.326 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13% 0.971 1.914 2.829 3.717 4.500 5.417 6,230 7,020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 Table For the Present Value of an Ordinary Annuity of $1 4% 5% 6% 0.002 0.962 0.943 1.886 1.850 2.775 2.723 3.630 3.546 4.452 4.330 5.242 5.076 6.002 5.780 6.733 6.463 7.435 7.108 8.111 7.722 8.761 8.306 9.385 8.863 9.986 9.394 10.563 9,899 11.118. 10.380 1.833 2.673 3465 4.212 4.017 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 8% 0926 1.783 2.577 3312 3.903 4.023 5.200 5.747 6247 6.710 7.139 7.536 7,904 8.244 8.560 10% 0.909 173 2.487 3.170 3.791 4.300 4.800 6.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 12% 0803 1.601 12.402 13.037 3.005 4.111 4.564 4.968 5.328 5.650 5.935 6.194 6.424 6.628 6.811