The annual rate of return for Project Soup is 62% 12.0% 24% Ⓒ31.0%
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- Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
- Staple Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Beans Project Rice Initial investment Annual net income Net annual cash flow Estimated useful life Salvage value Periods 5 6 9% The company requires a 10% rate of return on all new investments. Present Value of an Annuity of 1 11% 12% 3.890 4.486 10% 3.791 $400,000 4.355 20,000 100,000 5 years -0- 3.696 4.231 $600,000 42,000 142,000 6 years -0- The net present value for Project Rice is 3.605 4.111Wildhorse Company is considering two capital investment proposals. Estimates regarding each project are provided below: Initial investment Annual net income Net annual cash inflow Estimated useful life Salvage value Periods 5 6 Project Soup $520000 0000 48000 12%. 10%. 11%, 9%. 156000 5 years 0 Project Nuts $720000 The company requires a 10% rate of return on all new investments. 46000 175000 6 years Present Value of an Annuity of 1 0 9% 10% 11% 12% 3.89 3.791 3.696 3,605 4.486 4.355 4.231 4.111 The internal rate of return for Project Nuts is approximatelyWildhorse Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Soup Project Nuts Initial investment $340000 $420000 Annual net income 30000 46000 Net annual cash inflow 110000 146000 Estimated useful life 5 years 6 years Salvage value 0 0 The company requires a 10% rate of return on all new investments. Present Value of an Annuity of 1 Periods 9% 10% 11% 12% 5 3.89 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 The net present value for Project Nuts is A. $70000. B. $635830. C. $215830. D. $260206.
- Boomerang Bungee Corp. is considering the following project. Determine the equal annual annuity for the project if the cost of capital is 14%. Initial Investment: $75,000 Year Cash Inflows 1 $30,000 2 $35,000 3 $40,000 a. $2,259.62 b. $4,355.25 c. $7,768.67 d. $5,527.89Vaughn Company has the following information about a potential capital investment: Initial investment Annual cash inflow Expected life Cost of capital $ 340,000 $ 80,000 7 years 13% 1. Calculate the net present value of this project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round the final answer to nearest whole dollar.) Net Present ValueThe company will invest $150,000 in a project and average annual income $50,000. The investment will provide the following inflows: Year Cash inflow 1 $ 25,000 2 45,000 3 30,000 4 50,000 5 70,000 Calculate: Net present value at 15% discount factor. Payback period Accounting rate of return Note: 15% discount factor : Year 15% discount factor 1 0.8696 2 0.7561 3 0.6575 4 0.5718 5 0.4972
- Vaughn Company has the following information about a potential capital investment: Initial investment $ 280,000 Annual cash inflow $ 74,000 6 years 13% Expected life: Cost of capital 1. Calculate the net present value of this project. (Future Value of $1. Present Value of $1. Euture Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round the final answer to nearest whole dollar.) Net Present ValueConsider two competing projects, for which MARR = 12%: Initial Equivalent Investment, P Annuity, A $100000 $23000 $100000 $35000 Project Project A Project B Duration 9 years 4 years ROR i* % 17.7% 15% According to the RoR method, Project A is preferable. However, the company will be able to reinvest the future cash flows at rate 25%, compounded annually. Is Project A still preferable?