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1.  Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. If required, round your answers to one decimal place. Proposal Average Rate of Return Proposal A % Proposal B % Proposal C % Proposal D % 2.  Using the following format, summarize the results of your computations in parts (1) and (2) by placing the calculated amounts in the first two columns on the left and indicate which proposals should be accepted for further analysis and which should be rejected. If required, round your answers to one decimal place. Proposal Cash Payback Period Average Rate of Return   A   %   B    %   C   %   D   %   3.  For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of $1 table above. Round to the nearest dollar. Line Item Description Answer Answer Select the proposal accepted for further analysis. Proposal c  Proposal D Present value of net cash flow total $ $ Less amount to be invested     Net present value $ $

1.  Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. If required, round your answers to one decimal place. Proposal Average Rate of Return Proposal A % Proposal B % Proposal C % Proposal D % 2.  Using the following format, summarize the results of your computations in parts (1) and (2) by placing the calculated amounts in the first two columns on the left and indicate which proposals should be accepted for further analysis and which should be rejected. If required, round your answers to one decimal place. Proposal Cash Payback Period Average Rate of Return   A   %   B    %   C   %   D   %   3.  For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of $1 table above. Round to the nearest dollar. Line Item Description Answer Answer Select the proposal accepted for further analysis. Proposal c  Proposal D Present value of net cash flow total $ $ Less amount to be invested     Net present value $ $

Survey of Accounting (Accounting I)
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter15: Capital Investment Analysis
Section: Chapter Questions
Problem 15.6.3P
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1.  Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. If required, round your answers to one decimal place.

Proposal Average Rate of Return
Proposal A %
Proposal B %
Proposal C %
Proposal D %

2.  Using the following format, summarize the results of your computations in parts (1) and (2) by placing the calculated amounts in the first two columns on the left and indicate which proposals should be accepted for further analysis and which should be rejected. If required, round your answers to one decimal place.

Proposal Cash Payback Period Average Rate of Return  
A
 
 %
 
B
 
  %
 
C
 
 %
 
D
 
 %
 

3.  For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of $1 table above. Round to the nearest dollar.

Line Item Description Answer Answer
Select the proposal accepted for further analysis.
Proposal c 
Proposal D
Present value of net cash flow total $ $
Less amount to be invested    
Net present value $ $
### Capital Investment Allocation Analysis Renaissance Capital Group is reviewing four proposals for capital investment allocation. Each proposal outlines the required investment amount, projected operating income, and net cash flow for a five-year period. A summary of each proposal is presented below: #### Proposal A: - **Investment**: $500,000 - **Year 1**: - Operating Income: $45,000 - Net Cash Flow: $145,000 - **Year 2**: - Operating Income: $40,000 - Net Cash Flow: $140,000 - **Year 3**: - Operating Income: $25,000 - Net Cash Flow: $125,000 - **Year 4**: - Operating Income: $20,000 - Net Cash Flow: $120,000 - **Year 5**: - Operating Income: $5,000 - Net Cash Flow: $105,000 - **Total**: - Operating Income: $135,000 - Net Cash Flow: $635,000 #### Proposal B: - **Investment**: $400,000 - **Year 1**: - Operating Income: $40,000 - Net Cash Flow: $120,000 - **Year 2**: - Operating Income: $20,000 - Net Cash Flow: $100,000 - **Year 3**: - Operating Income: $10,000 - Net Cash Flow: $90,000 - **Year 4**: - Operating Income: $10,000 - Net Cash Flow: $90,000 - **Year 5**: - Operating Income: $6,000 - Net Cash Flow: $86,000 - **Total**: - Operating Income: $86,000 - Net Cash Flow: $486,000 #### Proposal C: - **Investment**: $380,000 - **Year 1**: - Operating Income: $54,000 - Net Cash Flow: $130,000 - **Year 2**: - Operating Income: $49,000 - Net Cash Flow: $125,000 - **Year 3**
Transcribed Image Text:### Capital Investment Allocation Analysis Renaissance Capital Group is reviewing four proposals for capital investment allocation. Each proposal outlines the required investment amount, projected operating income, and net cash flow for a five-year period. A summary of each proposal is presented below: #### Proposal A: - **Investment**: $500,000 - **Year 1**: - Operating Income: $45,000 - Net Cash Flow: $145,000 - **Year 2**: - Operating Income: $40,000 - Net Cash Flow: $140,000 - **Year 3**: - Operating Income: $25,000 - Net Cash Flow: $125,000 - **Year 4**: - Operating Income: $20,000 - Net Cash Flow: $120,000 - **Year 5**: - Operating Income: $5,000 - Net Cash Flow: $105,000 - **Total**: - Operating Income: $135,000 - Net Cash Flow: $635,000 #### Proposal B: - **Investment**: $400,000 - **Year 1**: - Operating Income: $40,000 - Net Cash Flow: $120,000 - **Year 2**: - Operating Income: $20,000 - Net Cash Flow: $100,000 - **Year 3**: - Operating Income: $10,000 - Net Cash Flow: $90,000 - **Year 4**: - Operating Income: $10,000 - Net Cash Flow: $90,000 - **Year 5**: - Operating Income: $6,000 - Net Cash Flow: $86,000 - **Total**: - Operating Income: $86,000 - Net Cash Flow: $486,000 #### Proposal C: - **Investment**: $380,000 - **Year 1**: - Operating Income: $54,000 - Net Cash Flow: $130,000 - **Year 2**: - Operating Income: $49,000 - Net Cash Flow: $125,000 - **Year 3**
### Capital Rationing Policy Overview The company's capital rationing policy mandates a maximum **cash payback period** of 3 years. Additionally, a minimum **average rate of return** of 10% is required for all projects. Upon meeting these criteria, the **net present value method** and **present value indexes** are then used to prioritize the remaining proposals. ### Present Value of $1 at Different Compound Interest Rates The following table illustrates the present value of $1 at different compound interest rates (6%, 10%, 12%, 15%, and 20%) over a period of 10 years. | **Year** | **6%** | **10%** | **12%** | **15%** | **20%** | |----------|--------|---------|---------|---------|---------| | 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 | | 2 | 0.890 | 0.826 | 0.797 | 0.756 | 0.694 | | 3 | 0.840 | 0.751 | 0.712 | 0.658 | 0.579 | | 4 | 0.792 | 0.683 | 0.636 | 0.572 | 0.482 | | 5 | 0.747 | 0.621 | 0.567 | 0.497 | 0.402 | | 6 | 0.705 | 0.564 | 0.507 | 0.432 | 0.335 | | 7 | 0.665 | 0.513 | 0.452 | 0.376 | 0.279 | | 8 | 0.627 | 0.467 | 0.404 | 0.327 | 0.233 | | 9 | 0.592 | 0.424 | 0.361 | 0.284 | 0.194 | | 10 | 0.558 | 0.386
Transcribed Image Text:### Capital Rationing Policy Overview The company's capital rationing policy mandates a maximum **cash payback period** of 3 years. Additionally, a minimum **average rate of return** of 10% is required for all projects. Upon meeting these criteria, the **net present value method** and **present value indexes** are then used to prioritize the remaining proposals. ### Present Value of $1 at Different Compound Interest Rates The following table illustrates the present value of $1 at different compound interest rates (6%, 10%, 12%, 15%, and 20%) over a period of 10 years. | **Year** | **6%** | **10%** | **12%** | **15%** | **20%** | |----------|--------|---------|---------|---------|---------| | 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 | | 2 | 0.890 | 0.826 | 0.797 | 0.756 | 0.694 | | 3 | 0.840 | 0.751 | 0.712 | 0.658 | 0.579 | | 4 | 0.792 | 0.683 | 0.636 | 0.572 | 0.482 | | 5 | 0.747 | 0.621 | 0.567 | 0.497 | 0.402 | | 6 | 0.705 | 0.564 | 0.507 | 0.432 | 0.335 | | 7 | 0.665 | 0.513 | 0.452 | 0.376 | 0.279 | | 8 | 0.627 | 0.467 | 0.404 | 0.327 | 0.233 | | 9 | 0.592 | 0.424 | 0.361 | 0.284 | 0.194 | | 10 | 0.558 | 0.386
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