Question
8. 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
8. 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.
Determine: (a) the average rate of return on investment, giving effect to depreciation on the investment, and (b) the net present value.
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