Question
Bonita Corporation is reviewing an investment proposal. The schedule below presents the initial cost and estimates of the book value of the investment at the
Bonita Corporation is reviewing an investment proposal. The schedule below presents the initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year. All cash flows are assumed to take place at the end of the year. The investment's salvage value at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life.
Investment Proposal | |||||||||
---|---|---|---|---|---|---|---|---|---|
Year | Initial Cost and Book Value | Annual Cash Flows | Annual Net Income | ||||||
0 | $105,200 | ||||||||
1 | 69,100 | $50,700 | $14,600 | ||||||
2 | 41,300 | 44,800 | 16,000 | ||||||
3 | 20,100 | 40,700 | 19,400 | ||||||
4 | 9,000 | 35,000 | 21,900 | ||||||
5 | 0 | 29,400 | 23,600 |
Bonita Corporation uses a 15% target rate of return for new investment proposals.
(a)
What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 12.52.)
Cash payback period | enter the cash payback period in years rounded to 2 decimal places | years |
(b)
What is the annual rate of return for the investment? (Round answer to 2 decimal places, e.g. 12.52%.)
Annual rate of return | enter the annual rate of return in percentages rounded to 2 decimal places % |
The Sunland Inn is trying to determine its break-even point. The inn has 74 rooms available that are rented at $60 a night. Operating costs are as follows:
Salaries | $12,820 | per month | Maintenance | $540 | per month | |||
---|---|---|---|---|---|---|---|---|
Utilities | $1,950 | per month | Housekeeping service | $6 | per room | |||
Depreciation | $1,970 | per month | Other costs | $30 | per room |
If the inn plans on renting 32 rooms per day (assuming a 30-day month), what is the monthly margin of safety in dollars and the margin of safety ratio?
Monthly margin of safety | $enter the monthly margin of safety in dollars | ||
---|---|---|---|
Margin of safety ratio | enter the margin of safety ratio in percentages | % |
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