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$60,000 $120,000 50,000 110,000 45,000 105,000 30,000 90,000 20,000 80,000 $205,000 $505,000 minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound nt Value at 12% 893 797 712 636

$60,000 $120,000 50,000 110,000 45,000 105,000 30,000 90,000 20,000 80,000 $205,000 $505,000 minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound nt Value at 12% 893 797 712 636

FINANCIAL ACCOUNTING
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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Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1. $60,000 $120,000 2 50,000 110,000 3 45,000 105,000 4 30,000 90,000 20,000 80,000 $205,000 $505,000 The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below: Present Value Year of $1 at 12% 1 0.893 2 0.797 3 0.712 4 0.636 5 0.567 a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places. % b. Determine the net present value. 72,190
Transcribed Image Text:Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1. $60,000 $120,000 2 50,000 110,000 3 45,000 105,000 4 30,000 90,000 20,000 80,000 $205,000 $505,000 The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below: Present Value Year of $1 at 12% 1 0.893 2 0.797 3 0.712 4 0.636 5 0.567 a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places. % b. Determine the net present value. 72,190
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