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First two parts are the question. The rest is how it needs to be filled in. I've tried it twice and can't seem to get
First two parts are the question. The rest is how it needs to be filled in. I've tried it twice and can't seem to get it. Cany anyone help?
P26-5B Compute annual rate of return, cash payback, and net present value | ||||||
The Borders and Noble partnership is considering three long-term capital investment proposals. | ||||||
Each investment has a useful life of 5 years. Relevant data on each project are as follows. | ||||||
Project Mary | Project Winnie | Project Sarah | ||||
Capital investment | $140,000 | $175,000 | $190,000 | |||
Annual net income: | ||||||
Year | 1 | 10,000 | 12,500 | 19,000 | ||
2 | 10,000 | 12,000 | 16,000 | |||
3 | 10,000 | 11,000 | 14,000 | |||
4 | 10,000 | 8,000 | 9,000 | |||
5 | 10,000 | 6,000 | 8,000 | |||
Total | 50,000 | 49,500 | 66,000 | |||
Depreciation is computed by the straight-line method with no salvage value. The | ||||||
company's cost of capital is 12%. (Assume that cash flows occur evenly throughout | ||||||
the year.) | ||||||
Instructions | ||||||
(a) Compute the cash payback period for each project. (Round to two decimals.) | ||||||
(b) Compute the net present value for each project. (Round to nearest dollar.) | ||||||
(c ) Compute the annual rate of return for each project. (Round to two decimals.) | ||||||
(Hint: Use average annual net income in your computation.) | ||||||
(d) Rank the projects on each of the foregoing bases. Which project do you recommend? | ||||||
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . | ||||||
(a) | Project Mary | |||||
Net income | Value | Investment | Value | |||
Depreciation | Value | Annual net cash flows | Value | |||
Annual net cash flows | Value | Payback period | Value | |||
Project Winnie | ||||||
Net Annual | Cumulative | |||||
Year | Cash Flow | Net Cash Flow | ||||
1 | Value | Value | ||||
2 | Value | Value | ||||
3 | Value | Value | ||||
4 | Value | Value | ||||
5 | Value | Value | ||||
Project Sarah | ||||||
Net Annual | Cumulative | |||||
Year | Cash Flow | Net Cash Flow | ||||
1 | Value | Value | ||||
2 | Value | Value | ||||
3 | Value | Value | ||||
4 | Value | Value | ||||
5 | Value | Value | ||||
(b) | Project Mary | Present | ||||
Item | Amount | Years | PV Factor | Value | ||
Net annual cash flows | Value | 1-5 | 3.60478 | ? | ||
Capital investment | Value | |||||
Negative net present value | ? | |||||
Project Winnie | Project Sarah | |||||
Discount | Cash | Present | Cash | Present | ||
Year | Factor | Flow | Value | Flow | Value | |
1 | 0.89286 | Value | ? | Value | ? | |
2 | 0.79719 | Value | ? | Value | ? | |
3 | 0.71178 | Value | ? | Value | ? | |
4 | 0.63552 | Value | ? | Value | ? | |
5 | 0.56743 | Value | ? | Value | ? | |
Total | Value | ? | Value | ? | ||
Capital Investment | Value | Value | ||||
Net present value | ? | ? | ||||
(c) | Project Mary | Project Winnie | Project Sarah | |||
Total net income | Value | Value | Value | |||
Useful life | 5 years | 5 years | 5 years | |||
Average annual net income | ? | ? | ? | |||
Original Investment | Value | Value | Value | |||
Value at end of useful life | Value | Value | Value | |||
Average investment | ? | ? | ? | |||
Average annual net income | Value | Value | Value | |||
Average investment | Value | Value | Value | |||
Annual rate of return | ? | ? | ? | |||
Net | Annual | |||||
(d) | Project | Cash Payback | Present Value | Rate of Return | ||
Mary | Value | Value | Value | |||
Winnie | Value | Value | Value | |||
Sarah | Value | Value | Value | |||
After you have completed the requirements of P26-5B, consider the additional question. | ||||||
1. | Assume that the investment amount of Project Winnie changed to $180,000. | |||||
Recalculate the payback period, net present value and annual return on Project Winnie. | ||||||
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