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Net operating income $34,875 Required: 1. Compute payback period of the truck. Is the investment in new truck desirable if maximum desired payback period of the Euro Transport company is 5 years? 2. Compute the accounting rate of return promised by the truck. Would the Euro Transport company be interested in new truck if minimum required accounting rate of return is 12%? Q3- The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below: Project A $600,000 Project B Cost of equipment Working capital needed Annual cash inflows $600,000 $160,000 $120,000 $40,000 8 years Salvage value (scrap value) of equipment Project life The working capital required for project B will be released at the end of project life. Sunshine company uses an 18% discount rate. Required: Are the two projects comparable using net present value (NPV)? If yes, Select the best investment using net present value (NPV) 8 Years method. Q4- PQR company sells two products. The total fixed expenses of the company are 1,197,000. The monthly data of PQR is as follows: Products Product A Product B Total $1,400,000 $600,000 $2,000,000 Sales

Net operating income $34,875 Required: 1. Compute payback period of the truck. Is the investment in new truck desirable if maximum desired payback period of the Euro Transport company is 5 years? 2. Compute the accounting rate of return promised by the truck. Would the Euro Transport company be interested in new truck if minimum required accounting rate of return is 12%? Q3- The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below: Project A $600,000 Project B Cost of equipment Working capital needed Annual cash inflows $600,000 $160,000 $120,000 $40,000 8 years Salvage value (scrap value) of equipment Project life The working capital required for project B will be released at the end of project life. Sunshine company uses an 18% discount rate. Required: Are the two projects comparable using net present value (NPV)? If yes, Select the best investment using net present value (NPV) 8 Years method. Q4- PQR company sells two products. The total fixed expenses of the company are 1,197,000. The monthly data of PQR is as follows: Products Product A Product B Total $1,400,000 $600,000 $2,000,000 Sales

Fundamentals of Financial Management (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 16P: REPLACEMENT CHAIN The Lesseig Company has an opportunity to invest in one of two mutually exclusive...
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Total operating expenses $90,125 Net operating income $34,875 Required: 1. Compute payback period off the truck. Is the investment in new truck desirable if maximum desired payback period of the Euro Transport company is 5 years? 2. Compute the accounting rate of return promised by the truck. Would the Euro Transport company be interested in new truck if minimum required accounting rate of return is 12%? Q3- The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below: Project A Project B $600,000 Cost of equipment Working capital needed Annual cash inflows $600,000 $160,000 $120,000 $40,000 Salvage value (scrap value) of equipment Project life The working capital required for project B will be released at the end of project life. Sunshine company uses an 18% discount rate. Required: Are the two projects comparable using net present value (NPV)? If yes, Select the best investment using net present value (NPV) 8 years 8 Years method. Q4- PQR company sells two products. The total fixed expenses of the company are 1,197,000. The monthly data of PQR is as follows: Products Product A Product B Total $1,400,000 $600,000 $2,000,000 Sales
Transcribed Image Text:Total operating expenses $90,125 Net operating income $34,875 Required: 1. Compute payback period off the truck. Is the investment in new truck desirable if maximum desired payback period of the Euro Transport company is 5 years? 2. Compute the accounting rate of return promised by the truck. Would the Euro Transport company be interested in new truck if minimum required accounting rate of return is 12%? Q3- The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below: Project A Project B $600,000 Cost of equipment Working capital needed Annual cash inflows $600,000 $160,000 $120,000 $40,000 Salvage value (scrap value) of equipment Project life The working capital required for project B will be released at the end of project life. Sunshine company uses an 18% discount rate. Required: Are the two projects comparable using net present value (NPV)? If yes, Select the best investment using net present value (NPV) 8 years 8 Years method. Q4- PQR company sells two products. The total fixed expenses of the company are 1,197,000. The monthly data of PQR is as follows: Products Product A Product B Total $1,400,000 $600,000 $2,000,000 Sales
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