Question 1 - Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $27,060. Each project will last for 3 years and produce the following net annual cash flows.
|
Year
|
AA
|
BB
|
CC
|
|
1
|
$8,610
|
$12,300
|
$15,990
|
|
2
|
11,070
|
12,300
|
14,760
|
|
3
|
14,760
|
12,300
|
13,530
|
|
Total
|
$34,440
|
$36,900
|
$44,280
|
The equipment's salvage value is zero, and Doug uses straight-line depreciation. Doug will not accept any project with a cash payback period over 2 years. Doug's required rate of return is 12%.
(a) Compute each project's payback period.
(b) Compute the net present value of each project
Question 2 - Vilas Company is considering a capital investment of $190,100 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $11,500 and $49,700, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment.
(a) Compute the cash payback period.
Compute the annual rate of return on the proposed capital expenditure.
(b) Using the discounted cash flow technique, compute the net present value.
Question 3 - Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows.
|
Project
|
Investment
|
Annual
Income
|
Life of
Project
|
|
22A
|
$240,500
|
$16,880
|
6 years
|
|
23A
|
272,700
|
20,620
|
9 years
|
|
24A
|
280,500
|
15,700
|
7 years
|
Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Iggy Company uses the straight-line method of depreciation.
(a) Determine the internal rate of return for each project.
(b) If Iggy Company's required rate of return is 11%, which projects are acceptable?
Attachment:- Assignment File.rar