Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used Project 1: Retooling Manufacturing Facility This project would require an initial investment of $5,500,000. It would generate $982,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,156,000. Project 2: Purchase Patent for New Product The patent would cost $3,855,000, which would be fully amortized over five years. Production of this product would generate $732.450 additional annual net income for Hearne. Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $180,000 each. The fleet would have a useful life of 10 years, and each truck would have a salvage value of $6,300. Purchasing the fleet would allow Heame to expand its customer territory resulting in $855,000 of additional net income per year. Required: 1. Determine each project's accounting rate of return (Round your answers to 2 decimal places.) Accounting Rate of Retur Project 1 Project 2 Project 3 % % 2. Determine each project's payback period. (Round your answers to 2 decimal places.) Payback Period Years Project 1 Project 2 Project 3 3. Using a discount rate of 10 percent, calculate the net present value of each project. (Future Value of $1. Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places.) Net Present Value Project 1 Project 2 Project 3 4. Determine the profitability index of each project and prioritize the projects for Hearne. (Round your intermediate calculations to 2 decimal places. Round your final answers to 4 decimal places.) Profitability Index Rank Project 1 Proiect 2 Project 3 TABLE 11.1A Future Value of $1 Periods 3% 4% 7% 8% WN-O 2% 1.0000 1.0200 1.0404 1.0612 1.0824 1.1041 1.1262 1.1487 1.1717 1.1951 12190 1.4859 3.75% 1.0000 1.0375 1.0764 1.1168 1.1587 1 2021 12472 1.2939 1.3425 1.3928 14450 2.0882 1.0000 1.0300 1.0609 1.0927 1.1255 1.1593 1.1941 1.2299 1.2668 1.3048 1.3439 1.8061 1.0000 1.0400 1.0816 1.1249 1.1699 1.2167 1.0000 1.0500 1025 1576 2155 12763 1.0000 1.0600 1.1236 1.1910 1.2625 1.3382 1.4185 1.5036 1.5938 1.6895 1.7906 3.2071 1.0000 1.0700 1.1449 1.2250 1.3108 1.4026 1.5007 1.6058 1.7182 1.8395 1.9672 3.8697 1.0000 1.0800 1.1664 1.2597 1.3605 1.4693 1.5869 1.7138 1.8509 1.9990 2.1589 4.6610 3401 4071 4775 1.3159 88 00 O 1.4233 5513 4802 Periods 15% 20% 25% 10000 1.1200 9% 1,0000 1.0900 1.1881 1.2950 1.4116 1.5386 1.6771 1.8280 1.9926 2.1719 23674 5.6044 10% 1.0000 1.1000 1.2100 1.3310 1.4641 1.6105 1.7716 1.9487 2.1436 23579 2.5937 6.7275 1,0000 1.1100 1.2321 1.3676 1.5181 1.6851 1.8704 2.0762 2.3045 2 5580 28394 8,0623 23 $889 SON 1.0000 1 2000 1.4400 1.7280 2.0736 24883 2.9860 3.5832 4.2998 5.1598 6.1917 38.3376 1.0000 1.2500 1.5625 1.9531 24414 3.0518 3.8147 4.7684 5.9605 7.4506 9.3132 86.7362 0000 3.0590 3.5179 40456 16.3665 TABLE 11.2 A Present Value of $1 Periods 2% 3% 7% 8% 0 8227 0.8219 0.9804 0.9612 0.9423 0.9238 0.9057 0.8880 0.8706 08535 0.8368 0.8203 0.6730 0.9709 0.9426 0.9151 0.8885 0.8626 0.8375 0.8131 0.7894 0.7664 0.7441 0.5537 0.9346 0.8734 0.8163 0.7629 0.7130 0.6663 0.6227 0.5820 0.5439 0.5083 0.2584 0.9259 0.8573 0.7938 0.7350 0.6806 0.6302 0.5835 0.5403 0.5002 0.4632 0.2145 20 3.75% 4% 4.25% 5% 0.9639 0.9615 0.9592 0.9524 0.9434 0.9290 0.9246 0.9201 0.9070 0.8900 0.8954 0.8890 0.8826 0.8638 0.8396 0.8631 0.8543 0.8466 0.7921 08319 0.8121 0.7835 0.7473 0.8018 0.7903 07790 0.7462 0.7050 0.7728 0.7599 0.7473 0.7107 0.6651 0.7449 0.7307 07168 06768 0.6274 0.7180 0.7026 0.6876 0.6446 0.5919 0.6920 0.6756 0.659533 0.6139 0.5584 0.4789 0.4564 0.43500 .3769 0.3118 11% 12% 13% 14% 15% 0.90090.89296.88500,87726.8896 0.8116 0.792 078313 0.7695 0.7561 0.7312 0.78 0.6931 06750 0.6575 0.5935 05674 06428 05194 0,5346 0.5066 0.48030.45560.4323 0.4817 0452304251 0 4823 0.4339 0 4039 63363 0.390903606 0320 0.33290.30750 03522 ozod 2843 0.2075 0.1240 0.0868 0.1037 072 0.103 0 0868 .0.0728 Periods 10% 20% 0.8333 06944 0.5787 9% 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963 0.5470 0.5019 0.4604 0.4224 0.1784 472 04019 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 0.1486 0.3349 25% 0.8000 0.6400 0.5120 0.4096 0.3277 0.2621 0.2097 0.1678 0.1342 0.1074 0.0115 0.2326 0.1938 0.1615 2472 0.0261 TABLE 11.3A Future Value of an Annuity of $1 Periods 4.25% 5% 6% 7% 8% ConWN- 2% 1.0000 2.0200 3.0604 4.1216 5.2040 6.3061 7.4343 8.5830 9.7546 10.9497 24.2974 9% 3% 1.0000 2.0300 3.0909 4.1836 5.3091 6.4684 7.6625 8.8923 10.1591 11.4639 26.8704 10% 3.75% 1.0000 2.0375 3.1139 4.2307 5.3893 6.5914 7.8386 9.1326 10.4750 11.8678 29.0174 11% 4% 1.0000 2.0400 3.1216 4.2465 5.4163 6.6330 7.8983 9.2142 10.5828 12.0061 29.7781 12% 1.0000 2.1200 3.3744 4.7793 6.3528 8.1152 10.0890 12.2997 14.7757 17.5487 72.0524 1.0000 2.0600 3.1836 4.3746 5.6371 6.9753 8.3938 9.8975 11.4913 13.1808 36.7856 1.0000 2.0500 3.1525 4.3101 5.5256 6.8019 8.1420 9.5491 11.0266 12.5779 33.0660 14% 1.0000 2.0425 3.1293 4.2623 5.4434 6.6748 7.9585 9.2967 10.6918 12.1462 30.5625 13% 1.0000 2.1300 3.4069 4.8498 6.4803 8.3227 10.4047 12.7573 15.4157 18.4197 80.9468 1.0000 2.0700 3.2149 4.4399 5.7507 7.1533 8.6540 10.2598 11.9780 13.8164 40.9955 20% 1.0000 2.0800 3.2464 4.5061 5.8666 7.3359 8.9228 10.6366 12.4876 14.4866 45.7620 25% Periods 15% 80 o van WN 1.0000 2.0900 3.2781 4.5731 5.9847 7.5233 9.2004 11.0285 13.0210 15.1929 51.1601 1.0000 2.1000 3.3100 4.6410 6.1051 7.7156 9.4872 11.4359 13.5975 15.9374 57 2750 1.0000 2.1100 3.3421 4.7097 6.2278 7.9129 9.7833 11.8594 14.1640 16.7220 64.2028 1.0000 2.1400 3.4396 4.9211 6.6101 8.5355 10.7305 13.2328 16.0853 19.3373 91.0249 1.0000 2.1500 3.4725 4.9934 6.7424 8.7537 11.0668 13.7266 16.7856 20.3037 102.4436 1.0000 2.2000 3.6400 5.3680 7.4416 9.9299 12.9159 16.4991 20.7989 25.9587 186.6880 1.0000 2.2500 3.8125 5.7656 8.2070 11.2588 15.0735 19.8419 25.8023 33.2529 342.9447 * There is one payment each period. BLE 11.4A Present Value of Annuity of $1 Periods 2% 4% 4.25% 5% 6% 7% DOWN 0.9804 1.9416 2.8839 3.8077 4.7135 5.6014 6.4720 7.3255 8.1622 8.9826 16.3514 3% 0.9709 1.9135 2.8286 3.7171 4.5797 5.4172 6.2303 7.0197 7.7861 8.5302 14.8775 3.75% 0.9639 1.8929 2.7883 3.6514 44833 52851 6.0579 6.8028 7.5208 8.2128 13.8962 0.9615 1.8861 2.7751 3.6299 4.4518 5.2421 6.0021 6.7327 7.4353 8.1109 13.5903 0.9592 1.8794 2.7620 3.6086 4.4207 5.1997 5.9470 6,6638 7.3513 8.0109 13.2944 0.9524 1.8594 2.7232 3.5460 4.3295 5.0757 5.7864 6.4632 7.1078 7.7217 12.4622 0.9434 1.8334 2.6730 3.4651 4.2124 4.9173 5.5824 6.2098 6.8017 0.9346 1.8080 26243 3.3872 4.1002 4.7665 5.3893 5.9713 6.5152 7.0236 10.5940 8% 0.9259 1.7833 2.5771 3.3121 3.9927 4.6229 5.2064 5.7466 6.2469 6.7101 9.8181 7.3601 11.4699 Periods 10% 11% 14% 15% OWN 0.9174 1.7591 2.5313 32397 3.8897 4.4859 5,0330 5.5348 5.9952 6.4177 9.1285 0.9091 1.7355 2.4869 3.1699 3.7908 4.3553 4 8684 53349 5.7590 6.1446 8.5136 0.9009 1.7125 2.4437 3.1024 3.6959 4.2305 4.7122 5.1461 5.5370 5.8892 7.9633 12% 0.8929 1.6901 2.4018 3.0373 3.6048 4.1114 4.5638 4.9676 5.3282 5.6502 7.4694 13% 08550 16681 23612 2.9745 3.5172 3.9975 4 4226 4.7988 5.1317 5.4262 7.0248 0.8772 1.6467 2.3216 2.9137 3.4331 3.8887 42883 4.6389 4.9464 5.2161 6.6231 0.8696 1.6257 22832 28550 3.3522 3.7845 4.1604 4.4873 4.7716 5.0188 6.2593 20% 0.8333 1.5278 2.1065 25887 2.9906 3.3255 3.6046 3.8372 4.0310 4.1925 4.8696 25% 0.8000 1.4400 1.9520 2.3616 2.6893 2.9514 3.1611 3.3289 3.4631 3.5705 3.9539 There is one payment each period