Question
(1) Average Rate of Return The following data are accumulated by Lone Peak Inc. in evaluating two competing capital investment proposals: 3D Printer Truck Amount
(1) Average Rate of Return
The following data are accumulated by Lone Peak Inc. in evaluating two competing capital investment proposals:
3D Printer | Truck | ||||
Amount of investment | $60,000 | $68,000 | |||
Useful life | 4 years | 9 years | |||
Estimated residual value | 0 | 0 | |||
Estimated total income over the useful life | $9,600 | $38,250 |
Determine the expected average rate of return for each proposal. If required, round your answers to one decimal place.
3D Printer _____?______ %
Truck______?_____ %
(2)
Net Present Value
A project has estimated annual net cash flows of $5,000 for six years and is estimated to cost $35,000. Assume a minimum acceptable rate of return of 20%. Use the Present Value of an Annuity of $1 at Compound Interest table below.
Present Value of an Annuity of $1 at Compound Interest | |||||
Year | 6% | 10% | 12% | 15% | 20% |
1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
5 | 4.212 | 3.791 | 3.605 | 3.353 | 2.991 |
6 | 4.917 | 4.355 | 4.111 | 3.785 | 3.326 |
7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
Determine (a) the net present value of the project and (b) the present value index. If required, use the minus sign to indicate a negative net present value.
Net present value of the project (round to the nearest dollar) | _____?________% |
Present value index (rounded to two decimal places) | _____?________% |
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