Question
You are presented with three investment opportunities. Each has a five-year estimated life. The company has a 10% minimum rate of return. Option 1 Option
You are presented with three investment opportunities. Each has a five-year estimated life. The company has a 10% minimum rate of return.
|
| Option 1 |
| Option 2 |
| Option 3 |
| Cost | $14,450 |
| $18,450 |
| $14,060 |
| Salvage value | $4,450 |
| $3,450 |
| 0 |
| Cash Inflows: |
|
|
|
|
|
| Year 1 | 5,000 |
| 6,000 |
| 3,900 |
| Year 2 | 4,000 |
| 7,000 |
| 3,900 |
| Year 3 | 4,500 |
| 5,000 |
| 3,900 |
| Year 4 | 4,000 |
| 4,000 |
| 3,900 |
| Year 5 | 3,000 |
| 5,000 |
| 3,900 |
|
|
|
|
|
|
|
| Yr 3 maintenance | 2,500 |
| 2,000 |
| 0 |
Ignoring income taxes, evaluate the investments using the following methods:
- Payback period
Option 1 __________
Option 2 __________
Option 3 __________
- Net Present Value
Option 1 __________
Option 2 __________
Option 3 __________
- Compute the Internal Rate of Return for Option 3 only.
Option 3 __________
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1st Edition
0367862751, 978-0367862756
