Caves Beach Tiles is reviewing a capital investment proposal. The initial cost of the project and the net cash flows for each year are presented in th table below It is estimated that there would be no salvage value at the end of the investment's life. Initial cost and carrying Year Annual net cash flows Annual net profit value 0 150,000 1 70,000 50,000 15,000 2 42,000 45,000 17,000 3 21,000 40,000 19,000 4 7,000 35,000 21,000 5 0 30,000 23,000 Caves Beach Tiles uses a rate of return of 8.5% to evaluate capital investment projects. REQUIRED: (a) Calculate the internal rate of return of the project (b) Should the project be accepted and why? (c) List three reasons why it is important for management to analyze capital expenditure projects.

Caves Beach Tiles is reviewing a capital investment proposal. The initial cost of the project and the net cash flows for each year are presented in th table below It is estimated that there would be no salvage value at the end of the investment's life. Initial cost and carrying Year Annual net cash flows Annual net profit value 0 150,000 1 70,000 50,000 15,000 2 42,000 45,000 17,000 3 21,000 40,000 19,000 4 7,000 35,000 21,000 5 0 30,000 23,000 Caves Beach Tiles uses a rate of return of 8.5% to evaluate capital investment projects. REQUIRED: (a) Calculate the internal rate of return of the project (b) Should the project be accepted and why? (c) List three reasons why it is important for management to analyze capital expenditure projects.

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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Pitt Company is considering two alternative investments. The company requires a 12% return from its investments. Neither option has a salvage value. Project X Project Y Initial investment $180,000 $118,000 Net cash flows anticipated: Year 1 82,000 59,000 92,000 81,000 76,000 35,000 55,000 72,000 68,000 27,000 Year 2 Year 3 Year 4 Year 5 Calculate the Net Present Value for each project and indicate which the Pitt Company should choose.
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