Allister company has a number of potential capital

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Reference no: EM13579413

Allister Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them

Project 1: Retooling Manufacturing Facility

This project would require an initial investment of $4.29 million. It would generate $743,067 in additional cash flow each year. The new machinery has a useful life of 7 years and a salvage value of $560,000.

Project 2: Purchase Patent for New Product

The patent would cost $5,180,000, which would be fully amortized over 4 years. Production of this product would generate $1,776,740 additional annual net income for Allister.

Project 3: Purchase a New Fleet of Delivery Trucks

Allister could purchase 25 new delivery trucks at a cost of $95,400 each. The fleet would have a useful life of 9 years, and each truck would have a salvage value of $4,400. Purchasing the fleet would allow Allister to expand its customer territory resulting in $610,560 of additional net income per year.

Requirement 1:

Determine each project's accounting rate of return. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

	Accounting rate of return
Project 1		%
Project 2		%
Project 3		%

Requirement 2:

Determine each project's payback period. (Round your answers to 2 decimal places.)

	Payback period
Project 1		years
Project 2		years
Project 3		years

Requirement 3:

Using a discount rate of 11 percent, calculate the net present value of each project. (Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

	Net present value
Project 1	$
Project 2	$
Project 3	$

Requirement 4:

Determine the profitability index of each project. (Round your intermediate calculations and final answers to 4 decimal places.)

	Profitability index
Project 1
Project 2
Project 3

Reference no: EM13579413

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