Keane & Co plc is considering two possible investments. The company requires an Accounting Rate of Return of 12% and payback within 2 years. It has a cost of capital of 12%. Forecast sales and production units Year 1 Year 2 Year 3 Year 4 Contribution per unit Fixed cost per year Initial investment Residual (scrap) value Accounting Rate of Return Internal Rate Return Discount factors at 12% are: Year 1 Year 2 Year 3 Year 4 Year 5 0.893 0.797 0.712 0.636 0.567 Project J 60,000 110,000 80,000 50,000 £40 £800,000 £7,600,000 £300,000 9.5% 8% Project K 30,000 24,000 20,000 12,000 £120 £700,000 £5,500,000 £150,000 19% 18%
Keane & Co plc is considering two possible investments. The company requires an Accounting Rate of Return of 12% and payback within 2 years. It has a cost of capital of 12%. Forecast sales and production units Year 1 Year 2 Year 3 Year 4 Contribution per unit Fixed cost per year Initial investment Residual (scrap) value Accounting Rate of Return Internal Rate Return Discount factors at 12% are: Year 1 Year 2 Year 3 Year 4 Year 5 0.893 0.797 0.712 0.636 0.567 Project J 60,000 110,000 80,000 50,000 £40 £800,000 £7,600,000 £300,000 9.5% 8% Project K 30,000 24,000 20,000 12,000 £120 £700,000 £5,500,000 £150,000 19% 18%
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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Transcribed Image Text:Keane & Co plc is considering two possible investments. The company requires an
Accounting Rate of Return of 12% and payback within 2 years. It has a cost of
capital of 12%.
Forecast sales and production units
Year 1
Year 2
Year 3
Year 4
Contribution per unit
Fixed cost per year
Initial investment
Residual (scrap) value
Accounting Rate of Return
Internal Rate Return
Discount factors at 12% are:
Year 1
Year 2
Year 3
Year 4
Year 5
0.893
0.797
0.712
0.636
0.567
Project J
60,000
110,000
80,000
50,000
£40
£800,000
£7,600,000
£300,000
9.5%
8%
Project K
30,000
24,000
20,000
12,000
£120
£700,000
£5,500,000
£150,000
19%
18%
Transcribed Image Text:Calculate operating cash flows.
Calculate the payback period for each project to
Calculate the net present value for each project,
£.
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