question 8 : Exercise 12-9 (Algo) Net Present Value Analysis and Simple Rate of Return [LO12-2, LO12-6]

question 9 : Exercise 12-11 (Algo) Preference Ranking of Investment Projects [LO12-5]

Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $4,000,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 16%. The project would provide net operating income each year for five years as follows: $ 3,300,000 1,400,000 1,900,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out- of-pocket costs Depreciation Total fixed expenses Net operating income $ 660,000 800,000 1,460,000 $ 440,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the project's net present value. 2. Compute the project's simple rate of return. 3a. Would the company want Derrick to pursue this investment opportunity? 3b. Would Derrick be inclined to pursue this investment opportunity? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Compute the project's net present value. (Round your final answer to the nearest whole dollar amount.) Net present value LACI CISC 14-Iniyo ICICI CHCE NOInny VI MIVELTICULTTUELLS LLVILJ Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Project A B c D Investment Required $ 190,000 $ 131,000 $ 100,000 $ 166,000 Present value of Cash Inflows $ 244,323 $ 217,000 $ 175,035 $ 253,136 Life of the Project (years) 7 12 7 3 Internal Rate of Return 17% 16% 20% 21% The net present values should be computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth. Required: 1. Compute the profitability index for each project. 2. In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the profitability Index for each project. (Round your answers to 2 decimal places.) Project Profitability Index A B D Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $4,000,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 16%. The project would provide net operating income each year for five years as follows: $ 3,300,000 1,400,000 1,900,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out- of-pocket costs Depreciation Total fixed expenses Net operating income $ 660,000 800,000 1,460,000 $ 440,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the project's net present value. 2. Compute the project's simple rate of return. 3a. Would the company want Derrick to pursue this investment opportunity? 3b. Would Derrick be inclined to pursue this investment opportunity? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Compute the project's net present value. (Round your final answer to the nearest whole dollar amount.) Net present value LACI CISC 14-Iniyo ICICI CHCE NOInny VI MIVELTICULTTUELLS LLVILJ Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Project A B c D Investment Required $ 190,000 $ 131,000 $ 100,000 $ 166,000 Present value of Cash Inflows $ 244,323 $ 217,000 $ 175,035 $ 253,136 Life of the Project (years) 7 12 7 3 Internal Rate of Return 17% 16% 20% 21% The net present values should be computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth. Required: 1. Compute the profitability index for each project. 2. In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the profitability Index for each project. (Round your answers to 2 decimal places.) Project Profitability Index A B D