Question
Kopecky Industries Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations,
Kopecky Industries Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:
| Project Name | Sierra | Tango | Uniform | Victor | ||||
| Investment | $751,674 | Investment | $2,625,030 | Investment | $1,791,650 | Investment | $966,680 | |
| Year | Income from Operations | Net Cash Flows | Income from Operations | Net Cash Flows | Income from Operations | Net Cash Flows | Income from Operations | Net Cash Flows |
| 1 | $77,000 | $220,000 | $279,000 | $900,000 | $230,000 | $500,000 | $108,000 | $400,000 |
| 2 | 77,500 | 220,000 | 279,275 | 900,000 | 230,000 | 500,000 | 108,000 | 400,000 |
| 3 | 78,000 | 220,000 | 279,550 | 900,000 | 230,000 | 500,000 | 108,000 | 400,000 |
| 4 | 78,500 | 220,000 | 279,825 | 900,000 | 230,000 | 500,000 | 108,000 | 400,000 |
| 5 | 79,000 | 220,000 | 280,100 | 900,000 | 230,000 | 500,000 | 108,000 | 400,000 |
| Total | $390,000 | $1,100,000 | $1,397,750 | $4,500,000 | $1,150,000 | $2,500,000 | $540,000 | $2,000,000 |
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Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162
The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 20% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place.
| Average Rate of Return | |
| Proposal Sierra | fill in the blank 5 % |
| Proposal Tango | fill in the blank 6 % |
| Proposal Uniform | fill in the blank 7 % |
| Proposal Victor | fill in the blank 8 % |
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Edp Auditing A Primer
Authors: Joseph L. Sardinas
1st Edition
0471123056, 978-0471123057
