Average rate of return method, net present value method, and analysis for a service company The...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Average rate of return method, net present value method, and analysis for a service company 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: Robotic Assembler Robotic Assembler Warehouse. Operating Warehouse Year Operating Income Net Cash Flow Income Net Cash Flow 1 $50,400 $165,000 $106,000 $264,000 2 50,400 165,000 81,000 223,000 3 50,400 165,000 40,000 157,000 4 50,400 165,000 18,000 107,000 5 50,400 165,000 7,000 74,000 Total $252,000 $825,000 $252,000 $825,000 Each project requires an investment of $560,000. 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. Present Value of $1 at Compound Interest 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. 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. Robotic Assembler Warehouse Present value of net cash flow Amount to be invested Net present value 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. The robotic assembler has a only one of the two projects can be accepted, the ( net present value because cash flows occur ( would be the more attractive. in time compared to the warehouse. Thus, if Average rate of return method, net present value method, and analysis for a service company 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: Robotic Assembler Robotic Assembler Warehouse. Operating Warehouse Year Operating Income Net Cash Flow Income Net Cash Flow 1 $50,400 $165,000 $106,000 $264,000 2 50,400 165,000 81,000 223,000 3 50,400 165,000 40,000 157,000 4 50,400 165,000 18,000 107,000 5 50,400 165,000 7,000 74,000 Total $252,000 $825,000 $252,000 $825,000 Each project requires an investment of $560,000. 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. Present Value of $1 at Compound Interest 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. 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. Robotic Assembler Warehouse Present value of net cash flow Amount to be invested Net present value 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. The robotic assembler has a only one of the two projects can be accepted, the ( net present value because cash flows occur ( would be the more attractive. in time compared to the warehouse. Thus, if
Expert Answer:
Related Book For
Financial and Managerial Accounting Using Excel for Success
ISBN: 978-1111993979
1st edition
Authors: James Reeve, Carl S. Warren, Jonathan Duchac
Posted Date:
Students also viewed these finance questions
-
Average Rate of Return Method, Net Present Value Method, and Analysis for a service company. The capital investment committee of Arches Landscaping Company is considering two capital investments. The...
-
DEFINE TABLE AUTHORS WITH COLUMNS AUTHORID INT AND AUTHORNAME VARCHAR(30),ADD COLUMN LEVEL PRIMARY KEY CONSTRAINT FOR AUTHORID, ADD COLUMN LEVEL NOT NULL CONSTRAINT FOR AUTHORNAME 2. DEFINE TABLE...
-
Read the following cases in addressing the following questions: Henry Hills, 76 TC 484 Henry Hills v. Commissioner, 691 F2d 997; 82-2 USTC 9669; 50 AFTR2d 82-6070 Miller v. Commissioner, 733 F2d 400;...
-
What are criteria to classify consumer goods and what is economic interpre-tation of these criteria?
-
Dairymaids yogurt goes through two sequential processes in two departments: Fermenting and Packaging. Assume that in the Packaging Department, Step 4 of the process costing procedure indicated the...
-
Millennial Technologies, a designer, manufacturer, and marketer of PC cards for portable computers, printers, telecommunications equipment, and equipment diagnostic systems, was the darling of Wall...
-
(08 Marks) In the Fig.1(c), compare the output of the network, if the activation function is a sigmoid 1 function y=- and (X1, X2) (1, 1). 1+e 1+1 AYY Y YC.) B YC. ye D 46 (06 Marks)
-
Expand f(x) = x, -7 < x < , in a Fourier series. 2.2.5. (a) Graph g(x) as a 2- periodic function: 1 if - < x < 0, 1 if 0 < x < T. (b) Find the Fourier coefficients corresponding to the function g(x)....
-
A share is currently selling for sh. 120. There are two possible prices of the share after one year: Sh. 132 or Sh. 105. Assume that the risk-free rate of return is 9 percent per annum. What is the...
-
When you deposit a Ghc50 bill in the Security Pacific National Bank, A. its liabilities decrease by Ghc50. B. its assets increase by Ghc50. C. its reserves decrease by Ghc50. D. its cash items in the...
-
James purchased a property at 67 Waterworks Road Nundah via contract dated 1 July 2020 and the title transferred on 1 August 2020. The property is two storeys and both the upstairs and downstairs...
-
What is not part of the Strategic Profit Model Framework? Contribution margin Income and balance data sheet Return on investment analysis Impact on return assets
-
If a company purchased equipment then its choices total assets will stay the same. total assets will decrease. total assets will increase.
-
What governance mechanisms need to be put in place to ensure common customer data and a shared customer service center? What metrics might be useful?
-
1. Firms may hold financial assets to earn returns. How the firm would classify financial assets? What treatment will such financial assets get in the financial statements in accordance with US GAAP...
-
Why do most computer systems use memory-mapped I/O?
-
Write a simple loop that lets you exercise the cache. By changing the number of statements in the loop body, you can vary the cache hit rate of the loop as it executes. If your microprocessor fetches...
-
Draw a timing diagram for a burst write operation that writes four locations.
Study smarter with the SolutionInn App