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LO26-1, LO26-3 EXERCISE 26.3 Understanding Return on Average Investment Relationships Foz Co. is considering four investment proposals (A, B, C, and D). The following table provides data concerning each of these investments. A в D Investment cost $50,000 $75,000 $40,000 $? Estimated salvage value 10,000 15,000 2,000 Average estimated net income 9,000 ? 6,000 8,000 Return on average investment . ? 18% 25% 20%

LO26-1, LO26-3 EXERCISE 26.3 Understanding Return on Average Investment Relationships Foz Co. is considering four investment proposals (A, B, C, and D). The following table provides data concerning each of these investments. A в D Investment cost $50,000 $75,000 $40,000 $? Estimated salvage value 10,000 15,000 2,000 Average estimated net income 9,000 ? 6,000 8,000 Return on average investment . ? 18% 25% 20%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Chrome File Edit View History Bookmarks Profiles Tab Window Help 100% A Thu 3:54 PM a G b EJE x a PQ i bookshelf.vitalsource.com/#/books/9781260006520/cfi/6/70!/4/6/18/134/4/2@0:36.8 Update : E Apps M Gmail O YouTube Maps KILLERANDASWE. A VitalSource Books. C A Delightful Buyin. P PaperCut MF : We. E Reading List D. Ir ne macnine manuracturea by Akron inaustries nas a paydack periou or ou monuns, wnar is Tis cost? c. Which of the machines is most attractive based on its respective payback period? Should Heartland base its decision entirely on this criterion? Explain your answer. LO26-1, LO26-3 EXERCISE 26.3 Understanding Return on Average Investment Relationships Foz Co. is considering four investment proposals (A, B, C, and D). The following table provides data concerning each of these investments. A B D Investment cost $50,000 $75,000 $40,000 $? Estimated salvage value 10,000 15,000 ? 2,000 Average estimated net income 9,000 ? 6,000 8,000 Return on average investment ? 18% 25% 20% LO26-3 EXERCISE 26.4 Discounting Cash Flows Solve for the missing information pertaining to each investment proposal. Using the tables in Exhibits 26–3 and 26–4, determine the present value of the following cash flows, discounted at an annual rate of 15 percent. a. $40,000 to be received 20 years from today. b. $24,000 to be received annually for 10 years. c. $16,000 to be received annually for five years, with an additional $20,000 salvage value expected at the end of the fifth year. d. $30,000 to be received annually for the first three years, followed by $20,000 received annually for the next two years (total of five years in which cash is received). page 1135 LO26-3 EXERCISE 26.5 Understanding Net Present Value Relationships 11,777 MAY X Aa W
Transcribed Image Text:Chrome File Edit View History Bookmarks Profiles Tab Window Help 100% A Thu 3:54 PM a G b EJE x a PQ i bookshelf.vitalsource.com/#/books/9781260006520/cfi/6/70!/4/6/18/134/4/2@0:36.8 Update : E Apps M Gmail O YouTube Maps KILLERANDASWE. A VitalSource Books. C A Delightful Buyin. P PaperCut MF : We. E Reading List D. Ir ne macnine manuracturea by Akron inaustries nas a paydack periou or ou monuns, wnar is Tis cost? c. Which of the machines is most attractive based on its respective payback period? Should Heartland base its decision entirely on this criterion? Explain your answer. LO26-1, LO26-3 EXERCISE 26.3 Understanding Return on Average Investment Relationships Foz Co. is considering four investment proposals (A, B, C, and D). The following table provides data concerning each of these investments. A B D Investment cost $50,000 $75,000 $40,000 $? Estimated salvage value 10,000 15,000 ? 2,000 Average estimated net income 9,000 ? 6,000 8,000 Return on average investment ? 18% 25% 20% LO26-3 EXERCISE 26.4 Discounting Cash Flows Solve for the missing information pertaining to each investment proposal. Using the tables in Exhibits 26–3 and 26–4, determine the present value of the following cash flows, discounted at an annual rate of 15 percent. a. $40,000 to be received 20 years from today. b. $24,000 to be received annually for 10 years. c. $16,000 to be received annually for five years, with an additional $20,000 salvage value expected at the end of the fifth year. d. $30,000 to be received annually for the first three years, followed by $20,000 received annually for the next two years (total of five years in which cash is received). page 1135 LO26-3 EXERCISE 26.5 Understanding Net Present Value Relationships 11,777 MAY X Aa W
Bowman Corporation is considering an investment in special-purpose equipment to enable the company to obtain a five-year government contract for the manufacture of a special item. The equipment costs $500,000 and would have no salvage value when the contract expires at the end of the five years. Estimated annual operating results of the project are as follows. Revenue from contract sales. $700,000 Expenses other than depreciation $400,000 Depreciation (straight-line basis) 100,000 500,000 Increase in net income from contract work. $200,000 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Bowman's proposal to undertake the contract work. a. Payback period. b. Return on average investment. c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 10 percent. (Refer to the annuity table in Exhibit 26-4.)
Transcribed Image Text:Bowman Corporation is considering an investment in special-purpose equipment to enable the company to obtain a five-year government contract for the manufacture of a special item. The equipment costs $500,000 and would have no salvage value when the contract expires at the end of the five years. Estimated annual operating results of the project are as follows. Revenue from contract sales. $700,000 Expenses other than depreciation $400,000 Depreciation (straight-line basis) 100,000 500,000 Increase in net income from contract work. $200,000 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Bowman's proposal to undertake the contract work. a. Payback period. b. Return on average investment. c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 10 percent. (Refer to the annuity table in Exhibit 26-4.)
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