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Assume that a company is considering a capital investment project with a four-year time horizon and the following cash flows: Cost of new equipment
Assume that a company is considering a capital investment project with a four-year time horizon and the following cash flows: Cost of new equipment $210,000 Working capital required $ 50,000 Annual net cash inflows $ 100,000 Maintenance and repairs in third year $ 40,000 Salvage value of equipment in fourth year $30,000 Click here to view Exhibit 148-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using the tables provided. Assuming the company's required rate of return is 20%, the profitability index of the project is closest to: 1.19. 1.15. O 1.05. O 1.31. Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: You can rent a location for your business at a cost of $36,000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000. Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. Other operating costs would include $60,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission. The simple rate of return for this investment opportunity is closest to: 25.8%. 18.4%. 14.9%. 21.2%.
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