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
Related questions
Question
100%
Compute for the following:
1. Accounting rate or return based on the average investment
2.
3. Traditional Payback Period
![Question
[Fact Pattem #16]
A proposed investment is not expected to have any salvage
value'at the end of its 5-year life. For present valué
purposes, cash flows are assumed to occur at the end of
each year. The company uses a 12% after-tax target rate
of return.
Purchase Cost Annual Net After- Annual
Year and Book Value Tax Cash Flows Net Income
$ 0
240,000
$ 0
70,000
78,000
86,000
94,000
$500,000
336,000
1
216,000
192,000
168,000
144,000
Discount Factors for a 12% Rate of Return
Present Value of $1 at Present Value of an Annuity of
Year the End of Each Period $1 at the End of Each
2
200,000
100,000
36,000
4
102,000
Period
89
80
89
1.69
2
71
.64
2.40
3.04
4
.57
3.61
6
51
4.12
1N34 56](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8a87bc86-7fb0-4211-bf2c-5f4a734f3bc6%2F8979f8da-efa1-4201-bb03-ecbe34670ef8%2Fd4hjdti_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question
[Fact Pattem #16]
A proposed investment is not expected to have any salvage
value'at the end of its 5-year life. For present valué
purposes, cash flows are assumed to occur at the end of
each year. The company uses a 12% after-tax target rate
of return.
Purchase Cost Annual Net After- Annual
Year and Book Value Tax Cash Flows Net Income
$ 0
240,000
$ 0
70,000
78,000
86,000
94,000
$500,000
336,000
1
216,000
192,000
168,000
144,000
Discount Factors for a 12% Rate of Return
Present Value of $1 at Present Value of an Annuity of
Year the End of Each Period $1 at the End of Each
2
200,000
100,000
36,000
4
102,000
Period
89
80
89
1.69
2
71
.64
2.40
3.04
4
.57
3.61
6
51
4.12
1N34 56
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