Question
TOMs Tomatoes and Herbs, LLC is considering investing in two alternative projects to improve the processing and packaging of TOMs Old World Spaghetti Sauce. Investment
TOMs Tomatoes and Herbs, LLC is considering investing in two alternative projects to improve the processing and packaging of TOMs Old World Spaghetti Sauce. Investment A has a lifespan of 8 years and initial costs of $20,000. Investment B has a lifespan of 5 years and initial costs of $10,000. TOMs Tomatoes and Herbs, LLC assumes a 10% discount rate on potential investments.
The yearly after-tax benefits for investment A are as follows:
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 |
$2,000 | $3,000 | $4,000 | $5,000 | $6,000 | $5,000 | $4,500 | $3,500 |
The yearly after-tax benefits for investment B are as follows:
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
$3,000 | $3,000 | $3,000 | $3,000 | $3,000 |
Assuming straight line depreciation of the two investments and a salvage value of $1,000 for Investment A and $500 for Investment B, what are the Average Annual Rates of Return of each investment? Round to the nearest dollar or tenth for the percentage.
Year | ||||||||||
Investment A | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | Average | |
After-tax Benefits | $2000 | $3000 | $4000 | $5000 | $6000 | $5000 | $4500 | $3500 | $4125 | |
Value of Investment A | ||||||||||
1-Jan | ||||||||||
31-Dec | ||||||||||
Average | ||||||||||
Average Annual Rate of Return for Investment A: % |
Year | ||||||||||
Investment B | 1 | 2 | 3 | 4 | 5 | Average | ||||
After-tax Benefits | $3000 | $3000 | $3000 | $3000 | $3000 | $3000 | ||||
Value of Investment B | ||||||||||
1-Jan | ||||||||||
31-Dec | ||||||||||
Average | ||||||||||
Average Annual Rate of Return for Investment B: % |
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