Bradley company is looking into investing in the purchase of a new building for $250,000. The building is expected to have a 10-year life with $30,000 salvage value. Annual net cash flows are expected to be $60,000 and Net Income is expected to be $40,000. The company's required rate of return is 12%.
Bradley company is looking into investing in the purchase of a new building for $250,000. The building is expected to have a 10-year life with $30,000 salvage value. Annual net cash flows are expected to be $60,000 and Net Income is expected to be $40,000. The company's required rate of return is 12%.
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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Question
Using the information above, compute the following (round all answers to 1 decimal place):
1. Calculate the Cash Payback Period
2. Calculate the
3. Compute the NPV of another similar building with a cost of $300,000, with 10-year life, salvage value of $20,000, which can generate $65,000 in annual cash flows, compute the profitability index of the two buildings.
4. Compute the Profitability Index of both buildings and state which building is a better investment and why?
5. Compute the Annual Rate of Return , assuming the company uses Straight-Line depreciation
6. The company accepts investments withCash Payback period ofless than the half of the useful life, Positive NPV, and an Annual Rate of Return greater than 25%. Should the investment be accepted? Yes or No, and explain why for each method used
Transcribed Image Text:Bradley company is looking into investing in the purchase of a new
building for $250,000. The building is expected to have a 10-year life
with $30,000 salvage value. Annual net cash flows are expected to be
$60,000 and Net Income is expected to be $40,000. The company's
required rate of return is 12%.
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