Reference no: EM132437617
Questions -
Q1. Mimulus Inc. is considering a capital investment of $300,000 in additional productive facilities. The new machinery is expected to have a useful life of five years with no residual value. Depreciation is by the straight-line method. During the life of the investment, annual profit and cash inflows are expected to be $30,000 and $90,000, respectively. Mimulus has a 15% cost of capital rate, which is the minimum acceptable rate of return on the investment.
Instructions - (Round to two decimals.)
(a) Calculate: (1) the annual rate of return, and (2) the cash payback period on the proposed capital expenditure.
(b) Using the discounted cash flow technique, calculate the net present value.
Q2. Calibrachoa Corp. is considering three capital expenditure projects. Relevant data for the projects are as follows:
|
Project
|
Investment
|
Annual Income
|
Life of Project
|
|
22
|
$240,000
|
$13,300
|
6 years
|
|
23
|
270,000
|
19,000
|
9 years
|
|
24
|
288,000
|
18,400
|
8 years
|
Annual income is constant over the life of the project. Each project is expected to have zero residual value. Calibrachoa Corp. uses the straight-line method of depreciation.
Instructions -
(a) Determine the internal rate of return for each project. Round the internal rate of return factor to three decimals.
(b) If Calibrachoa Corp's minimum required rate of return is 10%, which projects are acceptable?