Robotic Assembler Year Operating Income 1 2 3 Total $35,000 25,000 20,000 15,000 10,000 $105,000 Robotic Assembler Net Cash Flow $65,000 55,000 50,000 45,000 40,000 $255,000 Warehouse Operating Income $21,000 21,000 21,000 21,000 21,000 $105,000 Warehouse Net Cash Flow $51,000 $1,000 $1,000 51,000 $1,000 $255,000 Each project requires an investment of $150,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis.
Robotic Assembler Year Operating Income 1 2 3 Total $35,000 25,000 20,000 15,000 10,000 $105,000 Robotic Assembler Net Cash Flow $65,000 55,000 50,000 45,000 40,000 $255,000 Warehouse Operating Income $21,000 21,000 21,000 21,000 21,000 $105,000 Warehouse Net Cash Flow $51,000 $1,000 $1,000 51,000 $1,000 $255,000 Each project requires an investment of $150,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis.
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter2: Financial Statements, Cash Flow,and Taxes
Section: Chapter Questions
Problem 21SP: Begin with the partial model in the file Ch02 P21 Build a Model.xlsx on the textbooks Web site. a....
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Transcribed Image Text:6
7
8
9
10
Required:
0.705
0.564
0.507 0.432 0.335
0.665 0.513 0.452 0.376 0.279
0.627 0.467 0.404
0.327
0.233
0.592
0,424
0.361 0.284 0.194
0.558 0.386 0.322 0.247
0.162
1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.
Average Rate of Return
Robotic Assembler
Warehouse
14 X %
Present value of net cash flow
Amount to be invested
14 X %
1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar.
Robotic Assembler
Warehouse
Net present value
2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.
The robotic assembler has a greater ✔net present value because greater
of the two projects can be accepted, the robotic assembler ✓would be the more attractive.
cash flows occur earlier in time compared to the warehouse. Thus, if only one
Transcribed Image Text:eBook
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Average rate of return method, net present value method, and analysis for a service company
The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as
follows:
Year
1
2
3
4
Robotic Assembler
Operating Income
Year
1
2
3
4
5
6
7
8
Robotic Assembler
Net Cash Flow
$35,000
25,000
20,000
15,000
10,000
$105,000
$65,000
55,000
50,000
45,000
40,000
Total
$255,000
Each project requires an investment of $150,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for
purposes of the net present value analysis.
Warehouse
Operating
Income
$21,000
21,000
21,000
21,000
21,000
$105,000
Present Value of $1 at Compound Interest
6%
10%
12%
15%
20%
0.943 0.909
0.893 0.870
0.833
0.890
0.826
0.797 0.756
0.694
0.840
0.751 0.712
0.658
0.579
0.792
0.683
0.572
0.482
0.747
0.621
0.497 0.402
0.564 0.507 0.432
0.335
0.705
0.665
0.513 0.452 0.376
0.279
0.627
0.467 0.404 0.327
0.233
0.636
0.567
Warehouse -
Net Cash Flow
$51,000
51,000
51,000
$1,000
51,000
$255,000
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