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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Question
How do I compute the average
Transcribed Image Text:Excess Present Value Index and Average Rate of Return
Highpoint Company is evaluating five different capital expenditure proposals. The company's hurdle rate for net present value analyses is 12%. A 10% salvage value is expected from each of the investments. Information on the five proposals is as follows:
Proposal Required Investment PV at 12% of After-Tax Cash Flows Avg. Annual Net Income from Investment
$265,000
$305,030
$37,400
B.
195,000
231,780
26,000
155,000
168,040
19,200
175,000
211,300
27,600
123,000
131,990
14,960
a. Compute the excess present value index for each of the five proposals.
Round answers to three decimal places.
Proposal Excess PV Index
1.151
B.
1.189
1.084
1.207
1.073
b. Compute the average rate of return for each of the five proposals.
Round answers to one decimal place. For example, 0.4567 equals 45.7%
Proposal Avg. Rate of Return
0 96
0 %
0 9%
0 96
E
Expert Solution
Step 1
| AVERAGE RATE OF RETURN= | AVERAGE ANNUAL INCOME/AMOUNT OF INVESTMENT |
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