W. Bikes "R" Us is considering two capital investment proposals to add a new line of bikes to its current lineup. The Investments would be in a new machine to produce the new line of bikes. Estimates regarding each project are provided below: X-Treme Mountain Bike Hybrid Mountain Bike Initial Investment $750,000 $1,200,000 Annual Net Income 75,000 90,000 Net annual cash inflow 202,922 291,899 Estimated Useful Life (years) 5 6 Salvage Value 0 0 Both projects are mutually exclusive; i.e., Bikes "R" Us can only afford to select one of the projects and not both. The company requires a 10% rate of return on all new investments. 9% Periods 5 6 Present Value of an Annuity of 1 10% 11% 3.791 3.696 4.355 4.231 12% 3.605 3.890 4.486 4.111 Answer the questions below. NOTE: In order to receive full credit, you must use Excel formulas in each cell with a '?'. (a) Compute the Cash Payback period for both projects (6 points) Be sure to calculate the cost of Capital Investment and Net Annual Cash Flow for each project as well. NOTE: In order to receive full credit, you must use Excel formulas in each cell with a '?'. (b) Compute the Net Present Value for both projects (12 points) Be sure to calculate the Present Value of Net Cash Flows and Cost of Capital Investment for each project and state whether to accept or reject the proposal based on the Net Present Value calculated. NOTE: In order to receive full credit, you must use Excel formulas in each cell with a '?'. (c) Compute the Profitability Index for both projects. (9 points): Be sure to calculate the Present Value of Net Cash Flows and Cost of Capital Investment for each project. NOTE: In order to receive full credit, you must use Excel formulas in each cell with a '?'. (d) Compute the Internal Rate of Return for both projects. (12 points): Be sure to calculate the cost of Capital Investment, Net Annual Cash Flow, and Internal Rate of Return Factor for each project. Also, state whether to accept or reject the proposal based on the Internal Rate of Return calculated. NOTE: In order to receive full credit, you must use Excel formulas in each cell with a '?'. (e) Compute the Annual Rate of Return for both projects. (9 points): Be sure to calculate the Expected Annual Net Income and Average Investment for each project. NOTE: In order to receive full credit, you must use Excel formulas in each cell with a '?'. a (f) Which project would you choose. Write a thoughtful, thorough answer with information to support your answer. (12 points): (You will not receive full credit if your answer is not thoughtful, thorough, and well supported). (a) Compute the Cash Payback Period for both projects X-Treme Mountain Bike Cost of Capital Investment Value Net Annual Cash Flow Value Cash Payback Period ? Hybrid Mountain Bike Value Value ? REMEMBER: You must use formulas in the cells with a '?' or you will receive ZERO points. (Round to 3 decimals) (b) Compute the Net Present Value for both projects X-Treme Mountain Bike Present Value of Net Cash Flows Cost of Capital Investment Net Present Value 7 Accept or Reject Proposal Value Hybrid Mountain Bike ? Value ? REMEMBER: You must use formulas in the cells with a '?' or you will recelve ZERO points. (Select an answer) (c) Compute the Profitability Index for both projects X-Treme Mountain Bike Present Value of Net Cash Flows 2 Cost of Capital Investment Value Profitability Index ? Hybrid Mountain Bike ? Value ? REMEMBER: You must use formulas in the cells with a '?' or you will receive ZERO points. (Round to 3 decimals) (d) Compute the Internal Rate of Return for both projects. X-Treme Mountain Bike Cost of Capital Investment Value Net Annual Cash Flow Value Internal Rate of Return Factor ? Internal Rate of Return Value Accept or Reject Proposal Hybrid Mountain Bike Value Value ? Value REMEMBER: You must se formulas in the cells with a '?' or you will receive ZERO points. (Select an answer) (e) Compute the Annual Rate of Return for both projects. X-Treme Mountain Bike Expected Annual Net Income Value Average Investment ? Annual Rate of Return Hybrid Mountain Bike Value ? ? REMEMBER: You must use formulas in the cells with a '?' or you will receive ZERO points. ( Which project would you choose. Write a thoughtful, thorough answer with information to support your
