How do I compute the average rate of return of the five proposals? Rounding answers to one decimal place. Excess Present Value Index and Average Rate of ReturnHighpoint Company is evaluating five different capital expenditure proposals. The company's hurdle rate for net present value analyses is 12%. A 10% salvage value is expected from each of the investments. Information on the five proposals is as follows:Proposal Required Investment PV at 12% of After-Tax Cash Flows Avg. Annual Net Income from Investment$265,000$305,030$37,400B.195,000231,78026,000155,000168,04019,200175,000211,30027,600123,000131,99014,960a. Compute the excess present value index for each of the five proposals.Round answers to three decimal places.Proposal Excess PV Index1.151B.1.1891.0841.2071.073b. Compute the average rate of return for each of the five proposals.Round answers to one decimal place. For example, 0.4567 equals 45.7%Proposal Avg. Rate of Return0 960 %0 9%0 96E

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How do I compute the average rate of return of the five proposals? Rounding answers to one decimal place.

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 4PA: Net present value method, internal rate of return method, and analysis for a service company The...

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Question

How do I compute the average rate of return of the five proposals? Rounding answers to one decimal place.

Excess Present Value Index and Average Rate of Return
Highpoint Company is evaluating five different capital expenditure proposals. The company's hurdle rate for net present value analyses is 12%. A 10% salvage value is expected from each of the investments. Information on the five proposals is as follows:
Proposal Required Investment PV at 12% of After-Tax Cash Flows Avg. Annual Net Income from Investment
$265,000
$305,030
$37,400
B.
195,000
231,780
26,000
155,000
168,040
19,200
175,000
211,300
27,600
123,000
131,990
14,960
a. Compute the excess present value index for each of the five proposals.
Round answers to three decimal places.
Proposal Excess PV Index
1.151
B.
1.189
1.084
1.207
1.073
b. Compute the average rate of return for each of the five proposals.
Round answers to one decimal place. For example, 0.4567 equals 45.7%
Proposal Avg. Rate of Return
0 96
0 %
0 9%
0 96
E

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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AVERAGE RATE OF RETURN=

AVERAGE ANNUAL INCOME/AMOUNT OF INVESTMENT

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