As the project manager for HomeGrown, you are responsible for deciding which if any of the proposals to accept. HomeGrown's minimum acceptable rate of return is 20%. You receive the following data from the three contractors: Proposal Type of Floor Plan Initial Cost if Selected Residual Value Alpha Very open, like an indoor farmer’s market $1,472,000 $0.00 Beta Standard grocery shelving and layout, minimal aisle space 5,678,900 0.00 Gamma Mix of open areas and shelving areas 2,125,560 0.00 You have computed estimates of annual cash flows and average annual income from customers for each of the three contractors' plans. You believe that the annual cash flows will be equal for each of the 10 years for which you are preparing your capital investment analysis. Your conclusions are presented in the following table. Proposal Estimated Average Annual Income (after depreciation) Estimated Average Annual Cash Flow Alpha $291,014 $351,145 Beta 272,019 475,608 Gamma 521,931 592,819 Method Comparison Compare methods of capital investment analysis in the following table to begin your evaluation of the three capital investment proposals Alpha, Beta, and Gamma. You decide to compare four methods: the average rate of return, cash payback period, net present value, and internal rate of return methods. Average Rate of Return Method Cash Payback Method Net Present Value Method Internal Rate of Return Method Considers the time value of money Does not consider the time value of money Easy to compute Not as easy to compute Directly considers expected cash flows Directly considers timing of expected cash flows Assumes cash flows can be reinvested at minimum desired rate of return Can be used to rank proposals even if project lives are not the same Question Content Area Average Rate of Return You begin by trying to eliminate any proposals that are not yielding the company’s minimum required rate of return of 20%. Complete the following table, and decide whether Alpha, Beta, and/or Gamma should be eliminated because the average rate of return of their project is less than the company's minimum required rate of return. Complete the following table. Enter the average rates of return as percentages rounded to two decimal places. Proposal Estimated Average Annual Income Average Investment Average Rate of Return Accept or Reject Alpha Beta Gamma Question Content Area Cash Payback Method You’ve decided to confirm your results from the average rate of return by using the cash payback method. Using the following table, compute the cash payback period of each investment. If required, round the number of years in the cash payback period to a whole number. Proposal Initial Cost Annual Net Cash Inflow Cash Payback Period in Years Alpha Beta Gamma

As the project manager for HomeGrown, you are responsible for deciding which if any of the proposals to accept. HomeGrown's minimum acceptable rate of return is 20%. You receive the following data from the three contractors: Proposal Type of Floor Plan Initial Cost if Selected Residual Value Alpha Very open, like an indoor farmer’s market $1,472,000 $0.00 Beta Standard grocery shelving and layout, minimal aisle space 5,678,900 0.00 Gamma Mix of open areas and shelving areas 2,125,560 0.00 You have computed estimates of annual cash flows and average annual income from customers for each of the three contractors' plans. You believe that the annual cash flows will be equal for each of the 10 years for which you are preparing your capital investment analysis. Your conclusions are presented in the following table. Proposal Estimated Average Annual Income (after depreciation) Estimated Average Annual Cash Flow Alpha $291,014 $351,145 Beta 272,019 475,608 Gamma 521,931 592,819 Method Comparison Compare methods of capital investment analysis in the following table to begin your evaluation of the three capital investment proposals Alpha, Beta, and Gamma. You decide to compare four methods: the average rate of return, cash payback period, net present value, and internal rate of return methods. Average Rate of Return Method Cash Payback Method Net Present Value Method Internal Rate of Return Method Considers the time value of money Does not consider the time value of money Easy to compute Not as easy to compute Directly considers expected cash flows Directly considers timing of expected cash flows Assumes cash flows can be reinvested at minimum desired rate of return Can be used to rank proposals even if project lives are not the same Question Content Area Average Rate of Return You begin by trying to eliminate any proposals that are not yielding the company’s minimum required rate of return of 20%. Complete the following table, and decide whether Alpha, Beta, and/or Gamma should be eliminated because the average rate of return of their project is less than the company's minimum required rate of return. Complete the following table. Enter the average rates of return as percentages rounded to two decimal places. Proposal Estimated Average Annual Income Average Investment Average Rate of Return Accept or Reject Alpha Beta Gamma Question Content Area Cash Payback Method You’ve decided to confirm your results from the average rate of return by using the cash payback method. Using the following table, compute the cash payback period of each investment. If required, round the number of years in the cash payback period to a whole number. Proposal Initial Cost Annual Net Cash Inflow Cash Payback Period in Years Alpha Beta Gamma

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question Content Area

Average Rate of Return

You begin by trying to eliminate any proposals that are not yielding the company’s minimum required rate of return of 20%. Complete the following table, and decide whether Alpha, Beta, and/or Gamma should be eliminated because the average rate of return of their project is less than the company's minimum required rate of return.

Complete the following table. Enter the average rates of return as percentages rounded to two decimal places.

Proposal	Estimated Average Annual Income	Average Investment	Average Rate of Return	Accept or Reject
Alpha
Beta
Gamma

Question Content Area

Cash Payback Method

You’ve decided to confirm your results from the average rate of return by using the cash payback method.

Using the following table, compute the cash payback period of each investment. If required, round the number of years in the cash payback period to a whole number.

Proposal	Initial Cost	Annual Net Cash Inflow	Cash Payback Period in Years
Alpha
Beta
Gamma

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Proposal	Type of Floor Plan	Initial Cost if Selected	Residual Value
Alpha	Very open, like an indoor farmer’s market	$1,472,000	$0.00
Beta	Standard grocery shelving and layout, minimal aisle space	5,678,900	0.00
Gamma	Mix of open areas and shelving areas	2,125,560	0.00

Proposal	Estimated Average Annual Income (after depreciation)	Estimated Average Annual Cash Flow
Alpha	$291,014	$351,145
Beta	272,019	475,608
Gamma	521,931	592,819

	Average Rate of Return Method	Cash Payback Method	Net Present Value Method	Internal Rate of Return Method
Considers the time value of money
Does not consider the time value of money
Easy to compute
Not as easy to compute
Directly considers expected cash flows
Directly considers timing of expected cash flows
Assumes cash flows can be reinvested at minimum desired rate of return
Can be used to rank proposals even if project lives are not the same