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eBook Show Me How Question Content Area Average rate of return method, net present value method, and analysis for a service company The capital investment
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Average rate of return method, net present value method, and analysis for a service company
The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows:
Year Robotic Assembler
Operating Income Robotic Assembler
Net Cash Flow Warehouse
Operating Income Warehouse
Net Cash Flow
$ $ $ $
Total $ $ $ $
Each project requires an investment of $ Straightline depreciation will be used, and no residual value is expected. The committee has selected a rate of for purposes of the net present value analysis.
Present Value of $ at Compound Interest
Year
Required:
a Compute the average rate of return for each investment. If required, round your answer to one decimal place.
Investment Committee Average Rate of Return
Robotic Assembler
Warehouse
b Compute the net present value for each investment. Use the present value of $ table above. If required, round to the nearest dollar.
Line Item Description Robotic Assembler Warehouse
Present value of net cash flow $fill in the blank
$fill in the blank
Amount to be invested fill in the blank
fill in the blank
Net present value $fill in the blank
$fill in the blank
Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.
The robotic assembler has a fill in the blank of
net present value because fill in the blank of
cash flows occur earlier in time compared to the warehouse. Thus, if only one of the two projects can be accepted, the fill in the blank of
would be the more attractive.
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