chapter 13

Required information Exercise 13-8 Payback Period and Simple Rate of Return (L013-1, LO13-6) [The following information applies to the questions displayed below] Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $310,000, have a fifteen year useful life, and have a total salvage value of $31,000. The company estimates that annual revenues and expenses associated with the games would be as follows: $280,000 Revenues Less operating expenses Commissions to anusement houses Insurance Depreciation Maintenance Net operating Income $90,000 58,000 18,600 70.000 236,600 $ 43,400 Exercise 13-8 Part 1 Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's Novelties, Inc., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games? Complete this question by entering your answers in the tabs below. Req1A Reg 18 Compute the payback perlod associated with the new electronic games. Payback period Years CA Req 18 > Required information Exercise 13-8 Payback Period and Simple Rate of Return (LO13-1, LO13-6) [The following information applies to the questions displayed below.) Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $310,000, have a fifteen year useful life, and have a total salvage value of $31.000. The company estimates that annual revenues and expenses associated with the games would be as follows: $200,000 Revenues Less operating expenses Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $90,000 58,000 18,600 78,000 286,600 $ 43,400 Exercise 13-8 Part 2 2a Compute the simple rate of retur promised by the games. 25. If the company requires a simple rate of return of at least 13%, will the games be purchased? Complete this question by entering your answers in the tabs below. Reg RA Reg 28 Compute the simple rate of return promised by the games. (Round your answer to 1 Medmal place. 1.0.123 should be considered as 12.3%) Simptomater of room Reg 28 > Exercise 13-9 Net Present Value Analysis and Simple Rate of Return (L013-2, LO13-6) Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on Investment (ROI), which has been above 20% each of the last three years, Derrick is considering a capital budgeting project that would require a $4,200,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 18%. The project would provide net operating income each year for five years as follows: $3,600,000 2,550,000 2,050,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out of pocket costs Depreciation Total fixed expenses Net operating income $ 700,000 840,000 1,540,000 $ 510,000 Required: 1 Compute the project's net present value. 2. Compute the project's simple rate of return; 3a. Would the company want Derrick to pursue this investment opportunity? 36. Would Derrick be inclined to pursue this investment opportunity? Complete this question by entering your answers in the tabs below. Required: 1. Compute the project's net present value. 2. Compute the project's simple rate of return 3a. Would the company want Derrick to pursue this investment opportunity? 3b. Would Derrick be inclined to pursue this investment opportunity? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3A Reg 38 Compute the project's net present value. (Round your final answer to the nearest whole dollar amount.) Not present value Reg 2 > Required: 1. Compute the project's net present value. 2. Compute the project's simple rate of return. 3a. Would the company want Derrick to pursue this investment opportunity? 3b. Would Derrick be inclined to pursue this investment opportunity? Complete this question by entering your answers in the tabs below. Reg 1 Req2 Req 3A Reg 3B Compute the project's simple rate of return. (Round your answer to 1 decimal place i.e. 0.123 should be considere 12.3%) Simple rate of return % Exercise 13-11 Preference Ranking of Investment Projects (LO13-5) Oxford Company has limited funds available for investment and mustration the funds among four competing projects. Selected Information on the four projects follows: Project A Life of Net the Laternal Investint Present Project Rate Required Value (years) of Return $980,000 $154,587 5 16% $735,000 $305,868 20 19% $680,000 $181,942 5 20% 3880,000 $110,426 3 D The net present values above have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first second and so forth Required: 1. Compute the project profitability index for each project 2. In order of preference, ronk the four projects in terms of net present value, project profitability Index and Internal rate of return Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the project profitability index for each project (Round your answers to 2 decimal places.) Project Project Profitability Index B C D Regon Required 2 > Required 1 Required 2 In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return Net Present Value Project Profitability Internal Rate Index of Return First preference Second preference Third preference Fourth preference