Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

PA11-3 Comparing, 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.

image text in transcribed

PA11-3 Comparing, 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 line depreciation method is used. Project 1: Retooling Manufacturing Facility This project would require an initial investment of $5,800,000. It would generate $1,036,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,228,000. Project 2: Purchase Patent for New Product The patent would cost $4,065,000, which would be fully amortized over five years. Production of this product would generate $894,300 additional annual net income for Haarne. Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $210,000 each. The float would have a useful life of 10 years, and each truck would have a salvage value of $6,900. Purchasing the fleet would allow Heame to expand its customer territory resulting in $1,155,000 of additional net income per year. Required: 1. Determine cach project's Bounting rate al return (Round your answers to 2 decimal places.) Accounting Rate of Return Project 1 Project 2 Project 3 2. Determine each project's payback period. (Round your answers to 2 decimal places.) Payback Period Prajact 1 1 Years Years Project 2 Project 3 Yeer 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 Project 2 Project 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

Accounting The Easy Way

Authors: Peter J. Eisen

4th Edition

0764119761, 978-0764119767

More Books

Students also viewed these Accounting questions