Welsh Industries is considering two alternative investment opportunities. The company's controller has prepared the following analysis of
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Welsh Industries is considering two alternative investment opportunities. The company's controller has prepared the following analysis of the two investment proposals.
| Offer A | Offer B | |||||
| Required investment in equipment | $ | 400.000 | $ | 576.000 | ||
| Estimated service life of equipment | 5 years | 6 years | ||||
| Estimated recovery value | $ | 80.000 | $ | 0 | ||
| Estimated annual cost savings (net cash flow) | 100.000 | 192.000 | ||||
| Equipment depreciation (on a linear basis) | 64.000 | 96.000 | ||||
| Estimated increase in annual net income | 36.000 | 57.600 | ||||
Required:
a. Calculate the following for each recommended investment. Suppose it is discounted at a rate of 10 percent annually. Use Exhibits 26-3 and 26-4 as needed.
(1) Payback period
(2) Average return on investment
(3) Net present value
b. Based on your calculations in part a, which offer do you think is the better investment?
Expert Answer:
To calculate the payback period average return on investment ROI and net present value NPV well use the provided information and discount rate of 10 p... View the full answer
Related Book For 
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-1259692406
18th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
Posted Date:
