Information on four investment proposals is given below:ABInvestment requiredPresent value of cash inflows$ (360,000)506,000$ (150,000)210,300Investment Proposalс$ (130,000)197,300Net present value$ 146,000$ 60,300$ 67,300Life of the project5 years7 years6 yearsRequired:D$ (1,200,000)1,601,100$ 401,1006 years1. Compute the profitability index for each investment proposal. (Round your answers to 2 decimal places.)2. Rank the proposals in terms of preference.Investment ProfitabilityProposal IndexABCDRankPreference

Step 1: The calculation of the profitability index ABCDE1ProjectsInvestmentPV of cash…

Answered: Information on four investment…

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 4BE: Internal rate of return A project is estimated to cost 463,565 and provide annual net cash flows of...

See similar textbooks

Similar questions

Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
Capital rationing decision involving four proposals Kopecky Industries Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on allprojects. 1f the preceding standards are met, the net present value method and presentvalue indexes are used to rank the remaining proposals. Instructions Compute the present value index for each oldie proposals in part (4). Round to two decimal places.
Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: The companys capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals. Instructions 1. Compute the cash payback period for each of the four proposals. 2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place. 3. Using the following format, summarize the results of your computations in parts (1) and (2). By placing the computed amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should be accepted for further analysis and which should be rejected. 4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value table appearing in Exhibit 2 of this chapter. 5. Compute the present value index for each of the proposals in part (4). Round to two decimal places. 6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4). 7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). 8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
The management of Quest Media Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Radio Station TV Station 1 $420,000 $880,000 2 420,000 880,000 3 420,000 880,000 4 420,000 880,000 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 The radio station requires an investment of $1,087,380, while the TV station requires an investment of $2,512,400. No residual value is expected from either project. Required: 1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1…
The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment 1 $310,000 $650,000 2 310,000 650,000 3 310,000 650,000 4 310,000 650,000 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 The wind turbines require an investment of $885,050, while the biofuel equipment requires an investment of $1,974,050. No residual value is expected from either project. Required: 1a. Compute the net present value for each project. Use a rate of 10% and the present…
Find present amount or capitalized cost and A values at i= 5% of long-term public project if Nonrecurring costs: first $150,000; one-time of $50,000 in year 10 Recurring costs: annual maintenance of $8000 (years 1-6) and $9000 thereafter; Upgrade costs $15,000 each 15 years Also draw a cash flow diagram
The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment 1 $310,000 $620,000 2 310,000 620,000 3 310,000 620,000 4 310,000 620,000 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 The wind turbines require an investment of $802,590, while the biofuel equipment requires an investment of $1,770,100. No residual value is expected from either project. Required: 1a. Compute the net present value for each project. Use a rate of 10% and the present…
The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment 1 $160,000 $320,000 2 160,000 320,000 3 160,000 320,000 4 160,000 320,000 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 The wind turbines require an investment of $456,800, while the biofuel equipment requires an investment of $971,840. No residual value is expected from either project. Required: 1a. Compute the net present value for each project. Use a rate of 10% and the present…
The following were taken from the proposed investment plan of Satue Incorporated: Cost of investment, P500,000; net cash inflows: P200,000; P150,000; P150,000; P100,000; and P50,000 for years 1, 2, 3, 4, and 5, respectively; and salvage value: P200,000; P150,000; P100,000; P70,000 and P50,000, for years 1, 2, 3, 4, and 5, respectively. Determine the bail-out years. • 3• 1• 2• 4

Recommended textbooks for you

Managerial Accounting

Accounting

ISBN:

9781337912020

Author:

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

Publisher:

South-Western College Pub

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Financial And Managerial Accounting

Accounting

ISBN:

9781337902663

Author:

WARREN, Carl S.

Publisher:

Cengage Learning,

Managerial Accounting

Accounting

ISBN:

9781337912020

Author:

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

Publisher:

South-Western College Pub

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Financial And Managerial Accounting

Accounting

ISBN:

9781337902663

Author:

WARREN, Carl S.

Publisher:

Cengage Learning,

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Survey of Accounting (Accounting I)

Accounting

ISBN:

9781305961883

Author:

Carl Warren

Publisher:

Cengage Learning

EBK CFIN

Finance

ISBN:

9781337671743

Author:

BESLEY

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS