Reference no: EM132425830
Questions -
Q1. June Co. is evaluating a project requiring a capital expenditure of $620,000. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project are as follows:
|
Year
|
Net Income
|
Net Cash Flow
|
|
1
|
$45,000
|
$200,000
|
|
2
|
85,000
|
240,000
|
|
3
|
5,000
|
160,000
|
|
4
|
15,000
|
170,000
|
|
|
$150,000
|
$770,000
|
The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively.
a. Determine the average rate of return on investment, giving effect to depreciation on the investment.
b. Determine the net present value.
Q2. Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows:
|
Year
|
Net Income
|
Net Cash Flow
|
|
1
|
$60,000
|
$120,000
|
|
2
|
50,000
|
110,000
|
|
3
|
45,000
|
105,000
|
|
4
|
30,000
|
90,000
|
|
5
|
20,000
|
80,000
|
|
|
$205,000
|
$505,000
|
The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below:
|
Year
|
Present Value of $1 at 12%
|
|
1
|
0.893
|
|
2
|
0.797
|
|
3
|
0.712
|
|
4
|
0.636
|
|
5
|
0.567
|
a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places.
b. Determine the net present value.
|
Determine the net present value
: The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively. Determine the net present value
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