Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
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. (Future Value of $1. Present Value of $1. Future Value Annuity of S1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided.) Project 1: Retooling Manufacturing Facility This project would require an initial investment of $5,050,000. It would generate $1,045,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $2,000,000. Project 2: Purchase Patent for New Product The patent would cost $4,100,000, which would be fully amortized over five years. Production of this product would generate $922,500 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 $191,000 each. The fleet would have a useful life of 10 years, and each truck would have a salvage value of $7,000. Purchasing the fleet would allow Hearne to expand its customer territory resulting in $247,000 of additional net income per year, Required: 1. Determine each project's accounting rate of return 2. Determine each project's payback period. 3. Using a discount rate of 10 percent calculate the net present value of each project. 4. Determine the profitability index of each project and prioritize the projects for Hearne. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Determine each project's accounting rate of return. (Round your answers to 2 decimal places.) Required: 1. Determine each project's accounting rate of return. 2. Determine each project's payback period. 3. Using a discount rate of 10 percent, calculate the net present value of each project. 4. Determine the profitability index of each project and prioritize the projects for Hearne. pped sook Complete this question by entering your answers in the tabs below. 1 Print rences Required 1 rokuired 2 Required 3 Required 4 Determine each project's payback period. (Round your answers to 2 decimal places.) Payback Period Project 1 years Project 2 years Project 3 years Required: 1. Determine each project's accounting rate of return. 2. Determine each project's payback period. 3. Using a discount rate of 10 percent, calculate the net present value of each project. 4. Determine the profitability index of each project and prioritize the projects for Hearne. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Using a discount rate of 10 percent, calculate the net present value of each project. (Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places.) Net Present Value Project 1 Project 2 Project 3 Complete this question by entering your answers in the tabs below. + Required 1 Required 2 Required 3 Requided 4 nces 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 Project 2 Project 3 (Required 3

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managing Financial Resources

Authors: Mick Broadbent, John Cullen

3rd Edition

1138134546, 978-1138134546

More Books

Students also viewed these Accounting questions

Question

Describe regulatory focus theory.

Answered: 1 week ago