Capital Rationing Decsion Involving Four ProposalsKopecky Industries Inc. Is considering allocating a limited amount of capital Investment funds among four proposals. The amount of proposed Investment, estimated income from operations, and net cash flow for each proposal are as follows:ProjectUniformvictorSierraTangoNameInvestment $900,000Investment $2,770,865Investment $1,762,515Investment $1,040,013IncomeIncomeIncomeIncomeNet CashNet CashNet CashNet CashfromfromfromfromFlowsFlowsFlowsFlowsYearOperationsOperationsOperationsOperations$84,000$240,000$294,500$950,000$207,000$450,000$109,000$390,00084,500240,000294,775950,000207,000450,000109,000390,00085,000240,000295,050950,000207,000450,000109,000390,00085,500240,000295,325950,000207,000450,000109,000390,0005.86,000240,000295,600950,000207,000450,000109,000390,000Total$425,000$1,200,000 $1,475,250$4,750,000 S1,035,000$2,250,000$545,000$1,950,000Present Value of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.8330.8900.8260.7970.7560.6943.0.8400.7510.7120.6580.57940.7920.6830.6360.5720.4820.7470.6210.5670.4970.4020.7050.5640.5070.4320.3350.6650.5130.4520.3760.2790.6270.4670.4040.3270.233(PrevicCheck My WorkEmail instructorSave and ExitSubmit AsSign out 4.0.7920.683D.6360.5720.4820,7470.6210.5670.4970.4026.0.7050.5640.5070.4320.3357.0.6650.5130.4520.3760.2790.6270.4670.4040.3270.2330.5920.4240.3610.2840.194100.5580.3860.3220.2470.162The company's capital rationing policy requires a maximum cash payback perlod of three years. In addition, a minimum average rate of retun of 20% Is required on all profects. If the preceding standards are met, the net present value mare used to rank the remaining proposals.Required:1. Compute the cash payback period for each of the four proposals. Assume that net cash flows are uniform throughout the year.Cash Payback PeriodProposal Sierra3 years 9 monthsProposal Tango2 years 11 months vProposal Uniform3 years 11 monthsProposal Victor2 years 8 months2. Giving effect to straight-line depreciation on the Investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decmal place.Average Rate of ReturnProposal SlerraProposal TangoProposal UniformProposal VictorMeten thenculte fenm te(a nd.C-Check My WorkEmail InstructorSave and ExitSign c

The capital budgeting is a tool or technique that helps to analyze the profitability of the project…

-Compute the cash payback period for each of the four proposals. Assume that net cash flows are uniform throughout the year. Cash Payback Period Proposal Sierra 3 years 9 months v Proposal Tango 2 years 11 months v Proposal uniform 3 years 11 months Proposal Victor 2 years 8 months v 2. Giving effect to straight-line depreciation on the Investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decmal place. Average Rate of Return Proposal Sierra Proposal Tango

-Compute the cash payback period for each of the four proposals. Assume that net cash flows are uniform throughout the year. Cash Payback Period Proposal Sierra 3 years 9 months v Proposal Tango 2 years 11 months v Proposal uniform 3 years 11 months Proposal Victor 2 years 8 months v 2. Giving effect to straight-line depreciation on the Investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decmal place. Average Rate of Return Proposal Sierra Proposal Tango

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.6.3P

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Capital rationing decision involving four proposals Kopecky Industries Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on allprojects. 1f the preceding standards are met, the net present value method and presentvalue indexes are used to rank the remaining proposals. Instructions Compute the present value index for each oldie proposals in part (4). Round to two decimal places.
Military Jargon Industries Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: ProjectName Bravo Tango Uniform Victor Investment $880,008 Investment $2,770,865 Investment $1,566,680 Investment $918,346 Year Income fromOperations Net Cash Flows Income fromOperations Net Cash Flows Income fromOperations Net Cash Flows Income fromOperations Net Cash Flows 1 $96,000 $240,000 $294,500 $950,000 $176,000 $400,000 $108,000 $380,000 2 96,500 240,000 294,775 950,000 176,000 400,000 108,000 380,000 3 97,000 240,000 295,050 950,000 176,000 400,000 108,000 380,000 4 97,500 240,000 295,325 950,000 176,000 400,000 108,000 380,000 5 98,000 240,000 295,600 950,000 176,000 400,000 108,000 380,000 Total $485,000 $1,200,000 $1,475,250 $4,750,000 $880,000 $2,000,000 $540,000 $1,900,000 Present Value of $1 at…
Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated Operating income, and net cash flow for each proposal are as follows: Investment Year Operating Income Net Cash Flow Proposal A: $450,000 1 $30,000 $120,000 2 30,000 120,000 3 20,000 110,000 4 10,000 100,000 5 (30,000) 60,000 $60,000 $510,000 Proposal B: $200,000 1 $60,000 $100,000 2 40,000 80,000 3 20,000 60,000 4 (10,000) 30,000 5 (20,000) 20,000 $90,000 $290,000 Proposal C: $320,000 1 $36,000 $100,000 2 26,000 90,000 3 26,000 90,000 4 16,000 80,000 5 16,000 80,000 $120,000 $440,000 Proposal D: $540,000 1 $92,000 $200,000 2 72,000 180,000 3 52,000 160,000 4 12,000 120,000 5 (8,000) 100,000 $220,000 $760,000 The company's capital rationing policy requires a…
Net present value method, internal rate of return method, and analysis for a service company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: The wind turbines require an investment of 887,600, while the biofuel equipment requires an investment of 911,100. No residual value is expected from either project. Instructions 1. Compute the following for each project: A. The net present value. Use a rate of 6% and the present value of an annuity table appearing in Exhibit 5 of this chapter. B. A present value index. (Round to two decimal places.) 2. Determine the internal rate of return for each project by (A) computing a present value factor for an annuity of 1 and (B) using the present value of an annuity of 1 table appearing in Exhibit 5 of this chapter. 3. What advantage does the internal rate of return method have over the net present value method in comparing projects?
Net present value method, present value index, and analysis for a service company First United Bank Inc. is evaluating three capital investment projects by using the net present value method. Relevant data related to the projects are summarized as follows: Instructions 1. Assuming that the desired rate of return is 15%, prepare a net present value analysis for each project. Use the present value table appearing in Exhibit 2 of this chapter. 2. Determine a present value index for each project. (Round to two decimal places.) 3. Which project offers the largest amount of present value per dollar of investment? Explain.
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: Each project requires an investment of 75,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis. Instructions 1. Compute the following: A. The average rate of return for each investment. B. The net present value for each investment. Use the present value table appearing in Exhibit 2 of this chapter. (Round present values to the nearest dollar.) 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.
Cash payback period for a service company Janes Clothing Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of 975,000 and each with a seven-year life and expected total net cash flows of 1,050,000. Location 1 is expected to provide equal annual net cash flows of 150,000, and Location 2 is expected to have the following unequal annual net cash flows: Determine the cash payback period for both location proposals.
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
Comparison of NPV and IRR: The Case of Mutually Exclusive Projects Estimated cashflow data for each of two projects, A and B, and the discount rate, r, to be used for the analysis ofcapital investment projects are given below:[LO 12-9][LO 12-9]Year Project A Project B0 ($10,000) ($10,000)1 $7,000 $2,000 2 $3,000 $3,000 3 $2,000 $4,000 4 $2,000 $6,000 Discount rate, r = 10.0%.Required 1. In a capital budgeting context, explain the difference between independent and mutually exclusiveinvestments. Give an example of each type of investment project. What is the primary implication ofthis distinction for the analysis of capital investment projects?2. Use the built-in functions in Excel to calculate the IRR and the NPV for each investment project. Whichof these projects—if either—should be accepted if they are considered independent projects? RoundIRRs to 2 decimal places and NPVs to the nearest whole dollar. 3. An NPV profile for a project is a plot of the project’s NPV as a function of the…
PLEASE ANSWER ACCURETLY Duo Corporation is evaluating a project with the following cash flows: Year Cash Flow 0 −$ 29,800 1 12,000 2 14,700 3 16,600 4 13,700 5 −10,200 The company uses a discount rate of 13 percent and a reinvestment rate of 6 percent on all of its projects. a. Calculate the MIRR of the project using the discounting approach. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the MIRR of the project using the reinvestment approach. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. Calculate the MIRR of the project using the combination approach. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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)
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