Q.5 A company has three alternative investments which are being considered. Because all three investments are for the same type of unit and yield the same service, only one of the investments can be accepted. The risk factors are the same for all three cases. Company policies, based on the current economic situation, dictate that a minimum annual return on the original investment of 18 percent after taxes must be predicted for any unnecessary investment with interest on investment not included as a cost. (This may be assumed to mean that other equally sound investments yielding 18% return after taxes are available.) Company policies also dictate that, where applicable, straight-line depreciation is used and, for time-value of money interpretations, end-of-year cost and profit analysis is used. Land value and pre-startup costs can be ignored. Given the following data, determine which investment, if any, should be made by alternative analysis profitability-evaluation methods of (a) Rate of return on initial investment (b) Minimum payout period with no interest charge (c) Discounted cash flow (d) Net present worth (e) Capitalized costs Investment No. Total Initial fixed capital investment, $ Working Salvage value Capital at end of Investment, $ service life, $ Annual Cash Service flow to Life, Years project after tax, $ Annual Cash expenses (constant for each year), S 1 2 3 115,000 188,000 250,000 12,000 11,500 16,000 10,000 15,000 10,000 6 8 Yearly Tabulation 55,000 62,000 54,000 34,000 24,000 9 Q.5 A company has three alternative investments which are being considered. Because all three investments are for the same type of unit and yield the same service, only one of the investments can be accepted. The risk factors are the same for all three cases. Company policies, based on the current economic situation, dictate that a minimum annual return on the original investment of 18 percent after taxes must be predicted for any unnecessary investment with interest on investment not included as a cost. (This may be assumed to mean that other equally sound investments yielding 18% return after taxes are available.) Company policies also dictate that, where applicable, straight-line depreciation is used and, for time-value of money interpretations, end-of-year cost and profit analysis is used. Land value and pre-startup costs can be ignored. Given the following data, determine which investment, if any, should be made by alternative analysis profitability-evaluation methods of (a) Rate of return on initial investment (b) Minimum payout period with no interest charge (c) Discounted cash flow (d) Net present worth (e) Capitalized costs Investment No. Total Initial fixed capital investment, $ Working Salvage value Capital at end of Investment, $ service life, $ Annual Cash Service flow to Life, Years project after tax, $ Annual Cash expenses (constant for each year), S 1 2 3 115,000 188,000 250,000 12,000 11,500 16,000 10,000 15,000 10,000 6 8 Yearly Tabulation 55,000 62,000 54,000 34,000 24,000 9