2. Determine each project's payback period. (Round your answers to 2 decimal places.) Payback Period Project 1 Years Project 2 Years Project 3 Years 3. Using a discount rate of 10 percent, calculate the net present value of each project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places.) Net Present Value Project 1 Project 2 Project 3 4. Determine the profitability index of each project and prioritize the projects for Hearne. (Round your intermediate calculations to 2 decimal places. Round your final answers to 4 decimal places.) Rank Profitability Index Project 1 Project 2 Project 3 Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used Project 1: Retooling Manufacturing Facility This project would require an initial investment of $4,950,000. It would generate $883,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,024,000. Project 2: Purchase Patent for New Product The patent would cost $3,470,000, which would be fully amortized over five years. Production of this product would generate $468,450 additional annual net income for Hearne. Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $125,000 each. The fleet would have a useful life of 10 years, and each truck would have a salvage value of $5,200. Purchasing the fleet would allow Hearne to expand its customer territory resulting in $421,900 of additional net income per year.
2. Determine each project's payback period. (Round your answers to 2 decimal places.) Payback Period Project 1 Years Project 2 Years Project 3 Years 3. Using a discount rate of 10 percent, calculate the net present value of each project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places.) Net Present Value Project 1 Project 2 Project 3 4. Determine the profitability index of each project and prioritize the projects for Hearne. (Round your intermediate calculations to 2 decimal places. Round your final answers to 4 decimal places.) Rank Profitability Index Project 1 Project 2 Project 3 Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used Project 1: Retooling Manufacturing Facility This project would require an initial investment of $4,950,000. It would generate $883,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,024,000. Project 2: Purchase Patent for New Product The patent would cost $3,470,000, which would be fully amortized over five years. Production of this product would generate $468,450 additional annual net income for Hearne. Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $125,000 each. The fleet would have a useful life of 10 years, and each truck would have a salvage value of $5,200. Purchasing the fleet would allow Hearne to expand its customer territory resulting in $421,900 of additional net income per year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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How would i solve #3
Transcribed Image Text:2. Determine each project's payback period. (Round your answers to 2 decimal places.)
Payback Period
Project 1
Years
Project 2
Years
Project 3
Years
3. Using a discount rate of 10 percent, calculate the net present value of each project. (Future Value of $1, Present Value of $1, Future Value
Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your intermediate calculations to
4 decimal places and final answers to 2 decimal places.)
Net Present Value
Project 1
Project 2
Project 3
4. Determine the profitability index of each project and prioritize the projects for Hearne. (Round your intermediate calculations to 2 decimal
places. Round your final answers to 4 decimal places.)
Rank
Profitability Index
Project 1
Project 2
Project 3
Transcribed Image Text:Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon,
management is finding it difficult to compare them. Assume straight line depreciation method is used
Project 1: Retooling Manufacturing Facility
This project would require an initial investment of $4,950,000. It would generate $883,000 in additional net cash flow each year. The new
machinery has a useful life of eight years and a salvage value of $1,024,000.
Project 2: Purchase Patent for New Product
The patent would cost $3,470,000, which would be fully amortized over five years. Production of this product would generate $468,450 additional
annual net income for Hearne.
Project 3: Purchase a New Fleet of Delivery Trucks
Hearne could purchase 25 new delivery trucks at a cost of $125,000 each. The fleet would have a useful life of 10 years, and each truck would
have a salvage value of $5,200. Purchasing the fleet would allow Hearne to expand its customer territory resulting in $421,900 of additional net
income per year.
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