BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $75,000 $285,000 2 102,000 290,000 3 109,500 190,000 4 36,000 125,000 $322,500 $890,000 The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for Years 1 through 4 is 0.893, 0.797, 0.712, and 0.636, respectively. Determine the following: a. The average rate of return on investment, including the effect of depreciation on the investment. % b. The net present value. Enter negative values as negative numbers.
BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $75,000 $285,000 2 102,000 290,000 3 109,500 190,000 4 36,000 125,000 $322,500 $890,000 The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for Years 1 through 4 is 0.893, 0.797, 0.712, and 0.636, respectively. Determine the following: a. The average rate of return on investment, including the effect of depreciation on the investment. % b. The net present value. Enter negative values as negative numbers.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 2CE
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BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project are as follows:
| Year | Net Income | Net Cash Flow | |||
| 1 | $75,000 | $285,000 | |||
| 2 | 102,000 | 290,000 | |||
| 3 | 109,500 | 190,000 | |||
| 4 | 36,000 | 125,000 | |||
| $322,500 | $890,000 |
The company's minimum desired
Determine the following:
| a. The average rate of return on investment, including the effect of |
% | |
| b. The |
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