Review $-$ Chapter $19$

Apply the Concepts

Suppose that a company is considering two different and mutually exclusive projects $($ A and $B),$ where both have a five$-$year life and require an investment of $$84,000.$ The cash flow patterns for each project are given below.

Project A: Even cash flows of $$28,000$ per year.

Project B: $$48,000,$$$40,000,$$$36,000,$$$20,000,$ and $$12,000.$

Required:

Calculate the payback period for Project $A$ :

Payback period $=$ years

Apply the Concepts

Assume that an investment requires an initial outlay of $$480,000$ with no salvage value. The life of the investment is five years with the following yearly cash flows $($in chronological sequence$)$: $$144,000,$ $$144,000,$$$192,000,$$$144,000,$ and $$240,000.$

Required:

Calculate the annual net income for each of the five years:

Year $1$: $ $$

Year $2$: $$ x

Year $3$: $$ X

Year $4$:$ $x$

Year $5$: $ $$ X

$2.$ Calculate the following

Average net income $($round to the nearest dollar$)=$$

Accounting rate of return $($round to two decimal places$)$: $

Accounting rate of return $($round to two decimal places$)$: $