Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Measurement Question: An investment of $100,000 promises an after-tax cash flow of $36,000 per year for 6 years with no residual value. Find the investment's

Measurement Question: An investment of $100,000 promises an after-tax cash flow of $36,000 per year for 6 years with no residual value.

  1. Find the investment's accounting rate of return.
  2. Find the investment's payback period.
  3. Find the investment's net present value at a 15 percent discount rate
  4. Find the investment's internal rate of return
  5. Assuming the required rate of return on the investment is 15 percent, would you recommend this investment? Explain your answer using the results from your answers to questions a-d as appropriate.

BADM 3253 SLO1.2

A company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below.

Alternative

I

Alternative

II

Initial investment

$64,000

$120,000

Annual receipts

$50,000

$60,000

Annual disbursements

$20,000

$12,000

Annual depreciation

$16,000

$20,000

Expected life

4 years

6 years

Salvage value

0

0

At the end of the useful life of whatever equipment is chosen the product will be discontinued. The company's tax rate is 50 percent and its cost of capital is 10 percent.

  1. Calculate the Cash flow paying particular attention to the cash flow impact of taxes and depreciation,
  2. Calculate the net present value of each alternative.
  3. Calculate the internal rate of return for each alternative.
  4. If the company can implement only one of the two alternatives, and there is no restriction on investment amount, which alternative should be chosen? Why?

BADM 3253 SLO 1.3

Instructions: Analyze the attached Balance Sheet and Income statement, calculating and interpreting the following ratios, and making a conclusion on the financial position of the company addressing the 3 financial categories.

Profitability Ratios (in %): Return on equity, Return on assets, Return on invested capital, Profit margin, Gross margin

Turnover-Control Ratios; Asset turnover, Fixed-asset turnover, Inventory turnover, Collection period (days), Days' sales in cash, Payables period

Leverage and Liquidity Ratios: Assets to equity, Debt to assets, Debt to equity, Times interest earned, Current ratio, Acid test ratio.

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

Financial Management for Public Health and Not for Profit Organizations

Authors: Steven A. Finkler, Thad Calabrese

4th edition

133060411, 132805669, 9780133060416, 978-0132805667

More Books

Students also viewed these General Management questions

Question

Name and define the six major elements of the accounting equation.

Answered: 1 week ago

Question

Context, i.e. the context of the information presented and received

Answered: 1 week ago