Bundle: Managerial Accounting, Loose-leaf Version, 14th - Book Only
14th Edition
ISBN: 9781337541398
Author: Carl Warren; James M. Reeve; Jonathan Duchac
Publisher: Cengage Learning
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Chapter 11, Problem 1PA
Average
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows:
Each project requires an investment of $75,000. Straight-line
Instructions
- 1. Compute the following:
- A. The average rate of
return for each investment. - B. The net present value for each investment. Use the present value table appearing in Exhibit 2 of this chapter. (Round present values to the nearest dollar.)
- A. The average rate of
- 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.
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Average Rate of Return Method, Net Present Value Method, and Analysis for a service company
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows:
Front-End Loader
Year
1
2
3
4
5
Total
Year
1
2
3
4
5
6
7
8
9
10
Required:
Operating
Income
$62,000
62,000
62,000
62,000
62,000
$310,000
Each project requires an investment of $620,000. Straight-line depreciation.will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis.
Present Value of $1 at Compound Interest
6%
10%
15%
0.943
0.909
0.870
0.890
0.826
0.756
0.840
0.751
0.658
0.792
0.683
0.636
0.572
0.747
0.621
0.567 0.497
0.705
0.564 0.507 0.432
0.665
0.513
0.452 0.376
0.627
0.467
0.404
0.327
0.592
0.361
0.284
0.558
0.322 0.247
Front-End Loader
Greenhouse
0.424
Net Cash
Flow
$187,000
187,000
187,000
0.386
187,000
187,000
$935,000…
Average rate of return method, net present value method, and analysisThe capital investment committee of Nature's Portrait LandscapingCompany is considering two capital investments. The estimated incomefrom operations and net cash flows from each investment are as follows:
Each project requires an investment of $75,000. Straight-linedepreciation will be used, and no residual value is expected. Thecommittee has selected a rate of 12% for purposes of the net presentvalue analysis.
Instructions1. Compute the following:a. The average rate of return for each investment. Round to onedecimal place.b. The net present value for each investment. Use the present valueof $1 table appearing in this chapter (Exhibit 2). Round present values to the nearest dollar.2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.
Andrew Oxnard, chief financial officer, has been asked by Harry Pendel, chief executive officer and co-founder of Pendel & Braithwaite, Ltd. (P&B), to analyze two capital investment projects (projects A and B), which are expected to generate the following profit (p)streams:
Profit Streams for Projects A and B
period
?? ($)
?? ($)
1
100,000
350,000
2
200,000
300,000
3
250,000
200,000
4
300,000
100,000
5
325,000
100,000
Total
1,175,000
1,050,000
Profits are realized at the end of each period. Assuming that P&B is a profit maximizer if the discount rate for both projects is 12%, which of the two projects should be adopted?
Chapter 11 Solutions
Bundle: Managerial Accounting, Loose-leaf Version, 14th - Book Only
Ch. 11 - What are the principal objections to the use of...Ch. 11 - Discuss the principal limitations of the cash...Ch. 11 - Prob. 3DQCh. 11 - Your boss has suggested that a one-year payback...Ch. 11 - Prob. 5DQCh. 11 - Prob. 6DQCh. 11 - A net present value analysis used to evaluate a...Ch. 11 - Two projects have an identical net present value...Ch. 11 - Prob. 9DQCh. 11 - What are the major disadvantages of the use of the...
Ch. 11 - Prob. 11DQCh. 11 - Prob. 12DQCh. 11 - Prob. 1BECh. 11 - Prob. 2BECh. 11 - Prob. 3BECh. 11 - Prob. 4BECh. 11 - Prob. 5BECh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 5ECh. 11 - Cash payback method Lily Products Company is...Ch. 11 - Prob. 7ECh. 11 - Prob. 8ECh. 11 - Prob. 9ECh. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 14ECh. 11 - Prob. 15ECh. 11 - Prob. 16ECh. 11 - Prob. 17ECh. 11 - Prob. 18ECh. 11 - Prob. 19ECh. 11 - Prob. 20ECh. 11 - Net present value-unequal lives Bunker Hill Mining...Ch. 11 - Prob. 22ECh. 11 - Average rate of return method, net present value...Ch. 11 - Prob. 2PACh. 11 - Net present value method, present value index, and...Ch. 11 - Net present value method, internal rate of return...Ch. 11 - Prob. 5PACh. 11 - Prob. 6PACh. 11 - Prob. 1PBCh. 11 - Prob. 2PBCh. 11 - Net present value method, present value index, and...Ch. 11 - Prob. 4PBCh. 11 - Prob. 5PBCh. 11 - Prob. 6PBCh. 11 - Prob. 1ADMCh. 11 - Prob. 2ADMCh. 11 - Prob. 3ADMCh. 11 - Ethics in Action Danielle Hastings was recently...
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- as follows: Year 1 2 3 4 5 Total Year 1 2 Investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are 3 4 5 6 7 8 Front-End Loader 9 10 Operating Income Each project requires an investment of $520,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 10% 0.909 0.826 $52,000 52,000 52,000 52,000 52,000 $260,000 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.751 0.683 0.621 0.564 0.513 0.467 Net Cash Flow 0.424 0.386 $157,000 157,000 157,000 157,000 157,000 $785,000 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 Greenhouse Operating Income $109,000 83,000 42,000 18,000 8,000 $260,000 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279…arrow_forwardplease answer in text form and in proper format answer with must explanation , calculation for each part and steps clearlyarrow_forwardThe management of Winstead Corporation is considering the following three investment projects (Ignore income taxes.): Project Q Project R Project S Investment required $ 57,200 $ 97,200 $ 176,000 Present value of cash inflows $ 62,092 $ 111,792 $ 193,320 The only cash outflows are the initial investments in the projects. Required: Rank the investment projects using the project profitability index.arrow_forward
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