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Determine the average rate of return on the investment

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Reference no: EM131774690

BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of 4 years and no salvage value. The net cash flow from the project is as follows:

Year               Net Cash Flow

1                           $285,000

2                            290,000

3                            190,000

4                            125,000

                            $890,000

?The company's minimum desired rate of return is 12%.

  1. Determine the average rate of return on the investment.
  2. Use the formula that you were given in class to determine the present value factor of $1.00 at 12% for each of the 4 years. SHOW THE FORMULA AND PLACE THESE NUMBERS IN A CHART.
  3. Determine and show the net present value for the 4 years, adding these numbers to the previously created chart.
  4. Should the BAM CEO do this deal? Why/why not?

Reference no: EM131774690

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