3. Compute for Accounting Rate of return of A project of P650,000 is expected to generate the following cash flows over its useful life of 6 years: Year 1- P150,000, Year 2- P220,000, Year 3- P300,000, Year 4-P250,000, Year 5- P180,000, Year 6- P112,000, and the salvage value of P20,000 treated as the reduction in depreciable basis.

3. Compute for Accounting Rate of return of A project of P650,000 is expected to generate the following cash flows over its useful life of 6 years: Year 1- P150,000, Year 2- P220,000, Year 3- P300,000, Year 4-P250,000, Year 5- P180,000, Year 6- P112,000, and the salvage value of P20,000 treated as the reduction in depreciable basis.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 3MAD

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An equipment costing P120,000 is expected with an estimated economic life of 6 years, salvage value of P10,000, is expected to bring in net cash inflow of P70,000 in the first year of operations, P50,000 in the second year, P30,000 in the third year, P20,000 in the fourth year, P10,000 in the fifth year and P5,000 in the sixth year. Compute the net present value assuming that the desired rate of return if 18%.
Compute the NPV based on the following data Life of project 10.00 year Required Investment 500,000.00 Required Rate of Return 8% Required Working Capital to be released at the end of the project 35,000.00 Salvage value of equipment at end of year 10 12,000.00 Required overhaul in year 5 60,000.00 Annual increase in net income for this project 85,000.00 Year Cash flow 0 1 2 3 4 5 6 7 8 9 10 Net Present Value IRR Should we accept this project:?
A project has a first cost of S120,000 and an estimated salvage value of $20,000 at the end of 25 years. Estimated average annual receipts are 527,900. Estimated average annual disbursements for everything except income taxes are 515,060. Estimated average annual disbursements for income taxes are 54,420. Assuming that annual receipts and disbursements will be uniform throughout the 25 years, analyze the above data and compute internal rate of return. Comment whether this project is viable if the Bank offer an interest rate of 8% on loan.
Consider the following financial data for an investment project:• Required capital investment at n = 0: $ 100,000• Project service life: 10 years• Salvage value at n = 10: $15,000• Annual revenue: $150.000• Annual O&M costs (not including depreciation): $50.000• Depreciation method for tax purpose: seven-year MACRS• In come tax rate: 40%.Determine the project cash flow at the end of year 10.(a) $69.000(b) $73.000(c) $66.000(d) $67.000
The cash flows and Net salvage value of Project Y is given the following table: Year Cash flows Salvage Value 0 -5,800 5,800 1 2,100 3,000 2 1,400 2,200 3 1,600 1,900 4 1,800 300 Given the cost of capital is 10%, Calculate the NPV for its Economic Life and determine what are its economic life and physical life of Project Y?(Please show your work)
The amount of the average investment for a proposed investment of $149,000 in a fixed asset with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $32,300 for the four years is a.$32,300 b.$8,075 c.$74,500 d.$37,250
The following information relates to two capital investment projects - Project A and Project B: Initial investment of both projects = $400,000 Useful life = 4 years Estimate cost of capital = 16% Scrap value of both projects = $0 Straight-line method of depreciation is used The estimated net profits of Project A over its useful life: Year Amount 1 $70,000 2 $50,000 3 $100,000 4 $30,000 Project B is expected to generate net cash flows of $140,000 per year over the four year period. Calculate accounting rate of return on average investment of project A
The following information relates to two capital investment projects - Project A and Project B: Initial investment of both projects = $400,000 Useful life = 4 years Estimate cost of capital = 16% Scrap value of both projects = $0 Straight-line method of depreciation is used The estimated net profits of Project A over its useful life: Year Amount 1 $70,000 2 $50,000 3 $100,000 4 $30,000 Project B is expected to generate net cash flows of $140,000 per year over the four year period. Calculate internal rate of return of project B using interpolation
The following information relates to two capital investment projects - Project A and Project B: Initial investment of both projects = $400,000 Useful life = 4 years Estimate cost of capital = 16% Scrap value of both projects = $0 Straight-line method of depreciation is used The estimated net profits of Project A over its useful life: Year Amount 1 $70,000 2 $50,000 3 $100,000 4 $30,000 Project B is expected to generate net cash flows of $140,000 per year over the four year period. Calculate payback period of both projects
The following information relates to two capital investment projects - Project A and Project B: Initial investment of both projects = $400,000 Useful life = 4 years Estimate cost of capital = 16% Scrap value of both projects = $0 Straight-line method of depreciation is used The estimated net profits of Project A over its useful life: Year Amount 1 $70,000 2 $50,000 3 $100,000 4 $30,000 Project B is expected to generate net cash flows of $140,000 per year over the four year period. Calculate net present value of each project
Consider a capital expenditure project that has forecasted revenues equal to $32,000 per year; cash expenses are estimated to be $29,000 per year. The cost of the project equipment is $23,000, and the equipment’s estimated salvage value at the end of the project is $9,000. The equipment’s $23,000 cost will be depreciated on a straight-line basis to $0 over a 10-year estimated economic life. Assume that the project requires an initial $7,000 working capital investment. The company’s marginal tax rate is 30%. Calculate the project’s net present value using a 12% discount rate.
5. What is the ARR of a project investment of 1 million pesos of machinery with a life of 10 years and will generate profits of P250, 000? Straight line method is used in computing depreciation.