please see attachemnet. There is a part a & oart b in the attached file. Practice 5:Flower City Inc. is evaluating two alternative investment proposals. Below are data for eachproposal:Proposal A$84,0005 years$ 4,0008,200Proposal B$96,0006 years0-$ 8,000Initial investment costEstimated useful lifeEstimated salvage valueEstimated annual net incomeThe following information was taken from present value tables:Present Value$1 due in 5 years, discounted at 12%.. .$1 due in 6 years, discounted at 12%..$1 received annually for 5 years, disco$1 received annually for 6 years, discounted at 12 %.5675073.6054.111ted at 12%..All revenue and expenses other than depreciation will be received and paid in cash. Thecompany uses a discount rate of 12% in evaluating all capital investmentsCompute the following for each proposal (round payback period to the nearest tenth of a yearand round return on average investment to the nearest tenth of a percent)Part aProposal A$Proposal B$(a) Annual net cash flow(b) Payback period (in years)(c) Average investment(d) Return on average investment:(e) Net present value:%$$Part b: Based on your analysis, which proposal appears to be the best investment?

Formulas Used:Payback period = Initial Investment ÷ Annual Cash InflowAverage Investment = (Initial…

Answered: Practice 5: Flower City Inc. is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for 70,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of 15,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be 65,000 per year for each of the next five years. A driver will cost 40,000 in 20Y1, with an expected annual salary increase of 2,000 for each year thereafter. The annual operating costs for the truck are estimated to be 6,000 per year. a. Determine the expected annual net cash flows from the delivery truck investment for 20Y120Y5. b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 12%. Use the present value table appearing in Exhibit 2 of this chapter. c. Is the additional truck a good investment based on your analysis? Explain.
Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. With DEPREC5 still on the screen, click the Chart sheet tab. This chart shows the accumulated depreciation under all three depreciation methods. Identify below the depreciation method that each represents. Series 1 _____________________ Series 2 _____________________ Series 3 _____________________ When the assignment is complete, close the file without saving it again. Worksheet. The problem thus far has assumed that assets are depreciated a full year in the year acquired. Normally, depreciation begins in the month acquired. For example, an asset acquired at the beginning of April is depreciated for only nine months in the year of acquisition. Modify the DEPREC2 worksheet to include the month of acquisition as an additional item of input. To demonstrate proper handling of this factor on the depreciation schedule, modify the formulas for the first two years. Some of the formulas may not actually need to be revised. Do not modify the formulas for Years 3 through 8 and ignore the numbers shown in those years. Some will be incorrect as will be some of the totals. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as DEPRECT. Hint: Insert the month in row 6 of the Data Section specifying the month by a number (e.g., April is the fourth month of the year). Redo the formulas for Years 1 and 2. For the units of production method, assume no change in the estimated hours for both years. Chart. Using the DEPREC5 file, prepare a line chart or XY chart that plots annual depreciation expense under all three depreciation methods. No Chart Data Table is needed; use the range B29 to E36 on the worksheet as a basis for preparing the chart if you prepare an XY chart. Use C29 to E36 if you prepare a line chart. Enter your name somewhere on the chart. Save the file again as DEPREC5. Print the chart.

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