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Compute annual rate of return, Pay back period b  NPV using 14% discounts rate , Is the Project acceptable using this discount rate  Compute NPV using 11% discounts rate. Is the Project acceptable using this discount rate

Compute annual rate of return, Pay back period b  NPV using 14% discounts rate , Is the Project acceptable using this discount rate  Compute NPV using 11% discounts rate. Is the Project acceptable using this discount rate

Essentials Of Investments
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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a. Compute annual rate of return, Pay back period

b  NPV using 14% discounts rate , Is the Project acceptable using this discount rate

 Compute NPV using 11% discounts rate. Is the Project acceptable using this discount rate

Project 1: A furniture maker who manufactures desk chairs has an opportunity to begin making a new type of chair, which has additional features from the models they currently make. To manufacture the required parts for the new models, the company will need new machinery. Because of the risk level involved in taking on a new product, management is trying to determine whether the returns will justify the risk. Members of management are evaluating the project and have determined a |14% discount rate is appropriate for evaluation purposes. To aid management in their decision-making process, your supervisor has asked you to prepare an analysis of the project giving the following information and assumptions: The new equipment will have a cost of $364,000, a salvage value of $12,000 and a 10-year useful life. Straight line depreciation will be used. 1) The projected revenues, costs, and results for each of the 10 years of this project are as follows: 2) Sales $306,000 Less: Manufacturing costs Depreciation Shipping costs Administrative costs $192,000 35,200 15,000 16,500 258,700 Income before income taxes 47,300 Income tax expense 18,920 Net income $28,380
Transcribed Image Text:Project 1: A furniture maker who manufactures desk chairs has an opportunity to begin making a new type of chair, which has additional features from the models they currently make. To manufacture the required parts for the new models, the company will need new machinery. Because of the risk level involved in taking on a new product, management is trying to determine whether the returns will justify the risk. Members of management are evaluating the project and have determined a |14% discount rate is appropriate for evaluation purposes. To aid management in their decision-making process, your supervisor has asked you to prepare an analysis of the project giving the following information and assumptions: The new equipment will have a cost of $364,000, a salvage value of $12,000 and a 10-year useful life. Straight line depreciation will be used. 1) The projected revenues, costs, and results for each of the 10 years of this project are as follows: 2) Sales $306,000 Less: Manufacturing costs Depreciation Shipping costs Administrative costs $192,000 35,200 15,000 16,500 258,700 Income before income taxes 47,300 Income tax expense 18,920 Net income $28,380
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