Average Rate of Return Method, Net Present Value Method, and Analysis for a service companyThe capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income andnet cash flows from each investment are as follows:Front-End LoaderGreenhouseOperatingNet CashOperatingNet CashYearIncomeFlowIncomeFlow1$50,000$163,000$105,000$261,000250,000163,00080,000220,000350,000163,00040,000155,000450,000163,00018,000106,00050,000163,0007,00073,000Total$250,000$815,000$250,000$815,000Each project requires an investment of $500,000. Straight-line depreciation will be used, and no residual value is expected. The committee hasselected a rate of 12% for purposes of the net present value analysis.

Cash flow after taxes (CFAT) is a measure of financial performance that shows a company's ability to…

Answered: Average Rate of Return Method, Net…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 8 9 10 Required: Operating Income $62,000 62,000 62,000 62,000 62,000 $310,000 Each project requires an investment of $620,000. Straight-line depreciation.will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 6% 10% 15% 0.943 0.909 0.870 0.890 0.826 0.756 0.840 0.751 0.658 0.792 0.683 0.636 0.572 0.747 0.621 0.567 0.497 0.705 0.564 0.507 0.432 0.665 0.513 0.452 0.376 0.627 0.467 0.404 0.327 0.592 0.361 0.284 0.558 0.322 0.247 Front-End Loader Greenhouse 0.424 Net Cash Flow $187,000 187,000 187,000 0.386 187,000 187,000 $935,000…
The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment Cash Inflow 5 123456 $ 60,000 $ 4,000 $ 3,000 $ 8,000 3 $ 16,000 $ 17,000 $ 20,000 $ 18,000 7 $ 16,000 68 8 $ 14,000 9 $ 13,000 10 $ 13,000 Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year were several times as large? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the payback period of the investment. (Round your answer to 1 decimal place.) Payback period years
Using the Campbell Soup files given below, develop NOPAT, OCF, and FCF for the last two years. In your opinion and using these measures, is the firm healthy or not? Why or why not? [Note: you will need to use the cash flow statement to find data for fixed asset and working capital investments. For fixed asset investment, consider only the “Purchases of plant assets” in your analysis from the cash flow statement. For working capital investment, only consider Depreciation and Amortization, accounts receivable, inventory, accounts payable, accruals from the cash flow statement. Remember that each of these cash flows already represent changes in cash flow period-over-period.] Please use supporting data exhibits. Consolidated Balance Sheets July 28, 2019 July 29, 2018 Current assets Cash and cash equivalents $ 31 $ 49 Accounts receivable, net 574 563 Inventories 863 887 Other current assets 71 71…
Question: Altro Corporation is considering the following three investment projects: Project R Project S Project T Investment required $33,000 Present value of cash inflows $33,333 Required: $40,000 $46,800 $97,000 $112,520 Rank the projects according to the profitability index, from most profitable to least profitable. (Ignore income taxes in this problem)
Capital Investment Analysis: Tasty Doughnuts
Capital Investment Analysis: Arches Landscaping Company
Required: 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return Greenhouse Front-End Loader 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. Front-End Loader Greenhouse Present value of net cash flow Amount to be invested Net present value 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. The front-end loader has a net present value because would be the more attractive. cash flows occur earlier in time compared to the greenhouse. Thus, if only one of the two projects can be accepted, the
Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Initial investment Project X1 $ (80,000) Project X2 $ (120,000) Net cash flows in: Year 1 25,000 60,000 Year 2 Year 3 35,500 50,000 60,500 40,000 a. Compute each project's net present value. b. Compute each project's profitability index. c. If the company can choose only one project, which should it choose on the basis of profitability index? Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute each project's net present value. Net Cash Flows Present Value of Present Value of Net 1 at 4% Cash Flows Project X1 Year 1 $ 25,000 Year 2 35,500 Year 3 60,500 0.8890 Totals $ 121,000 $ 0 Initial investment (80,000) Net present value $ (80,000) Project X2 Year 1 Year 2 Year 3 Totals…
A techniques-Decision among mutually exclusive investments Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flows Initial investment (CF) Project A $60,000 Project B $100,000 Project C $90,000 Cash inflows (CF), t=1 to 5 $20,000 $31,500 $32,000 a. Calculate the payback period for each project. b. Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal to 12%. c. Calculate the internal rate of return (IRR) for each project. d. Indicate which project you would recommend. a. The payback period of project A is years. (Round to two decimal places.) % [7%
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A company is evaluating three possible investments. The following information is provided by the company: Project A Project B Project C Investment $238,000 $54,000 $238,000 Residual value 0 30,000 40,000 Net cash inflows: Year 1 70,000 30,000 100,000 Year 2 70,000 21,000 70,000 Year 3 70,000 17,000 80,000 Year 4 70,000 14,000 40,000 Year 5 70,000 0 0 What is the payback period for Project A? (Assume that the company uses the straight−line depreciation method.) (Round your answer to two decimal places.) A. 1.8 years B. 2.4 years C. 5.00 years D. 3.4 years

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