3 A B 1 2 Bascilla, Incorporated is trying to determine the value of several projects. Currently there are four being examined: 4 Project Automation Hire Extra Crew Acquire a Supplier Purchase Latest Model of Equipment 5 Initial Cost $ 650,000 $ 91,000 $ 1,200,000 $ 435,000 6 Salvage Value $ 90,000 7 Annual Increase to Net Income $ 64,000 $ N/A 17,000 $ N/A $ 133,000 46,000 $ 48,000 8 Project Life (years) 10 15 20 8 9 10 Required: 11 1. Compute the Accounting Rate of Return for each project. 12 2. Compute the Payback Period for each project. 13 14 Automation Hire Extra Crew Acquire a Supplier Purchase Latest Model: of Equipment 15 Accounting Rate of Return 16 17 Payback Period 18 3. Management believes that purchasing the latest equipment will result in uneven cash flows at the beginning 19 of its useful life and steady over time. 28222322528 20 21 Year Cash Flows 1 $ 65,000 2 35,000 3 104,000 4 55,000 26 5 23,000 27 6 87,000 7 70,000 8 68,000 + A1 18 fx A table of information for Bascilla, Incorporated is provided in cells A4 to E8. A statement of requirement is presented in TOWS 11 10 12. B C D 3. Management believes that purchasing the latest equipment will result in uneven cash flows at the beginning 19 of its useful life and steady over time. 20 21 Year Cash Flows 22 1 $ 65,000 23 2 35,000 24 3 104,000 25 4 55,000 26 5 23,000 27 6 87,000 28 7 70,000 29 8 68,000 30 31 Using management's predictions, use the chart below to determine the Payback Period with uneven cash flows. 32 33 Year Investment Cash Flow Unrecovered Investment 34 3 $ 435,000 $ $ 435,000 35 1 36 2 37 3 38 4 39 5 40 6 41 7 42 8 43 44 Full Years 45 Partial Year Calculation 46 Payback Period 47 G H