Pepper Co is contemplating three available investment opportunities, the cash flows of which are given below. Project Initial investment Cash flow Y1 Y2 Y3 Y4 Y5 $000 $000 $000 $000 $000 $000 (125) 50 50 50 50 F (120) 15 15 15 15 200 (170) 120 80 In each case the initial investment represents the purchase of plant and equipment whose realisable value will be 20% of initial cost, receivable in addition to the above flow at the end of the life of the project. Required: For each of the three projects: (a) Calculate the accounting rate of return (based on the average investment method) (b) Calculate the payback period (c) Calculate the net present value using a discount rate of 10%
Pepper Co is contemplating three available investment opportunities, the cash flows of which are given below. Project Initial investment Cash flow Y1 Y2 Y3 Y4 Y5 $000 $000 $000 $000 $000 $000 (125) 50 50 50 50 F (120) 15 15 15 15 200 (170) 120 80 In each case the initial investment represents the purchase of plant and equipment whose realisable value will be 20% of initial cost, receivable in addition to the above flow at the end of the life of the project. Required: For each of the three projects: (a) Calculate the accounting rate of return (based on the average investment method) (b) Calculate the payback period (c) Calculate the net present value using a discount rate of 10%
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 10E: Roberts Company is considering an investment in equipment that is capable of producing more...
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