Requirement 4 is not necessary. I am just in need of help on requirement 2 (AVERAGE RATE OF RETURN).
Kopecky Industries Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: Project sierra Tango Uniform Victor Name Investment $900,000 Investment $1,912,500 Investment $1,762,515 Investment $942,513 Income Income Income Income Net Cash Net cash Net Cash Net Cash from from from from Year Flows Flows Flows Flows Operations Operations Operations Operations 1 $95,000 $240,000 $263,500 $850,000 $202,500 $450,000 $109,000 $390,000 2 96,500 240,000 263,775 850,000 202,500 450,000 109,000 390,000 3 97,000 240,000 264,050 850,000 202,500 450,000 109,000 390,000 4 97,500 240,000 264,325 550,000 202,500 450,000 109,000 390,000 5 98,000 240,000 264,600 850,000 202,500 450,000 109,000 390,000 Total $485,000 $1,200,000 $1,320,250 $4,250,000 $1,012,500 $2,250,000 $545,000 $1,950,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 5 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 5 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 20% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals. Required: Required: 1. Compute the cash payback period for each of the four proposals. Assume that net cash ows are uniform throughout the year. Cash Payback Period Proposal sierra 3 years 9 months Proposal Tango 2 years 3 months Proposal Uniform 3 years 11 months Proposal Victor 2 years 5 months 2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place. Average Rate of Return Proposal sierra % Proposal Tango Proposal Unlform % Proposal Victor % 3. Using the results from parts (1) and (2) determine which proposals should be accepted for further analysis and which should be rejected. Accept / Reject Proposal Sierra Reject Proposal Tango Accept for further analysis Proposal Uniform Reject Proposal Vlctor Accept for further analysis 4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value of $1 table above. If required, use the minus sign to indicate a subtraction or negative net present value. Select the proposal accepted for further analysis. Proposal Tango Proposal Victor Present value of net cash ow total 3' $1 Amount to be invested Net present value SI $1 5. Compute the present value index for each of the proposals In part (4). Round to two declmal places. Select the proposal to compute present value index. Proposal Tango Propose Present value index (rounded)
