Bascilla, Incorporated is trying to determine the value of several projects. Currently there are four being examined: Purchase Latest Model of Project Initial Cost Automation $650,000 Hire Extra Crew $91,000 Acquire a Supplier Equipment $1,200,000 $435,000 Salvage Value $90,000 N/A N/A $133,000 Annual Increase to Net Income $64,000 $17,000 $46,000 $48,000 Project Life (years) 10 15 20 8 Required: 1. Compute the Accounting Rate of Return for each project. 2. Compute the Payback Period for each project. Automation Accounting Rate of Return 9.8% Hire Extra Crew 18.7% Acquire a Supplier 3.8% Purchase Latest Model of Equipment 11.0% Payback Period 8.75 5.35 26.09 6.29 x 3. Management believes that purchasing the latest equipment will result in uneven cash flows at the beginning of its useful life 11 Year Cash Flows 2 1 $65,000 23 2 35,000 4 3 104,000 567890123 4 55,000 5 23,000 6 87,000 7 8 70,000 68,000 1 Using management's predictions, use the chart below to determine the Payback Period with uneven cash flows. Unrecovered 4567 Year 3 Investment Cash Flow Investment $435,000 $- $435,000 1 $65,000 $65,000 $370,000 2 $100,000 $35,000 $335,000 3 $204,000 x $104,000 $231,000 8 4 $259,000 $55,000 $176,000 9 5 $282,000 $23,000 $153,000 40 6 $369,000 $87,000 $66,000 1 7 $439,000 2 8 3 4 Full Years 6 45 Partial Year Calculation 6 Payback Period 0.94 6.94 +7 60 Students: The scratchpad area is for you to do any additional work you need to solve this question or can be used to show your work 1 Nothing in this area will be graded, but it will be submitted with your assignment. 896 Unrecovered Year 1 3 Investment $435,000 Cash Flow Investment $- $435,000 1 $65,000 $370,000 5 2 3 B 4 5 6 7 8 $35,000 $335,000 $104,000 $231,000 $55,000 $176,000 $23,000 $153,000 $87,000 $66,000 Full Years 6 Partial Year Calculation Payback Period 3 6 0.94 6.94 Purchase Latest Model of 4 Automation Accounting Rate of Return 9.8% Hire Extra Crew 18.7% Acquire a Supplier Equipment 3.8% 11.0% 6 7 Payback Period 8 11.56 5.35 26.09 11.83 Required: 11. Compute the Accounting Rate of Return for each project. 22. Compute the Payback Period for each project. 3 Purchase Latest Model of 4 Automation 5 Accounting Rate of Return 9.8% Hire Extra Crew 18.7% Acquire a Supplier Equipment 3.8% 11.0% 5 7 Payback Period B 10.16 5.35 26.09 9.06 x