Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

PA11-3 (Algo) Comporing, Prioritizing Multiple Projects [LO 11-1, 11-2, 11-3, 11-6] Hearne Company has a number of potential capital Investments. Because these projects vary in

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed PA11-3 (Algo) Comporing, Prioritizing Multiple Projects [LO 11-1, 11-2, 11-3, 11-6] 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 Ine depreclation method is used. (Future Value of $1, Present Value of $1, Future Value Annuliy of $1, Present Value Annulty of $1.) Note: Use approprlate factor(s) from the tables provided. Project 1: Retooling Manufacturing Facillty This project would require an Initial Investment of $5,000,000. It would generate $1,000,000 in additional net cash flow each year. Th new machinery has a useful life of elght years and a salvage value of $1,950,000. Project 2: Purchase Patent for New Product The patent would cost $3,925,000, which would be fully amortized over five years. Production of this product would generate $785,000 additional annual net income for Hearne. Project 3: Purchase a New Fleet of Dellvery Trucks Hearne could purchase 25 new delivery trucks at a cost of $172,000 each. The fleet would have a useful life of 10 years, and each truck would have a salvage value of $6,500. Purchasing the fleet would allow Hearne to expand its customer territory, resulting in $242,000 of additional net income per year. Required: 1. Determine each project's accounting rate of return. 2. Determine each project's payback perlod. 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. Determine each project's accounting rate of return. Note: Round your answers to 2 decimal places. Determine each project's payback period. Note: Round your answers to 2 decimal places Using a discount rate of 10 percent, calculate the net present value Note: Negative amount should be indicated by a minus sign. Round final answers to 2 decimal places, Determine the profitability index of each project and priorit Note: Round your intermediate calculations to 2 decimal pl

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

Principles Of Auditing And Other Assurance Services

Authors: Ray Whittington, Kurt Pany

17th Edition

0077304454, 978-0077304454

More Books

Students also viewed these Accounting questions