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: Project Name Bravo Tango Uniform Victor   Investment $880,008 Investment $2,770,865 Investment $1,566,680 Investment $918,346 Year Income from Operations Net Cash Flows Income from Operations Net Cash Flows Income from Operations Net Cash Flows Income from Operations 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 Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 20% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are 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 Period Proposal Bravo 3 years 8 months Proposal Tango 2 years 11 months Proposal Uniform 3 years 11 months Proposal Victor 2 years 5 months   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 decimal place.   Average Rate of Return Proposal Bravo           % Proposal Tango 21.30 % Proposal Uniform            % Proposal Victor             %

Essentials Of Investments
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ISBN:9781260013924
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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:

Project
Name
Bravo Tango Uniform Victor
  Investment $880,008 Investment $2,770,865 Investment $1,566,680 Investment $918,346


Year

Income from
Operations

Net Cash Flows

Income from
Operations

Net Cash Flows

Income from
Operations

Net Cash Flows

Income from
Operations

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
  1.  
    Present Value of $1 at Compound Interest
    Year 6% 10% 12% 15% 20%
    1 0.943 0.909 0.893 0.870 0.833
    2 0.890 0.826 0.797 0.756 0.694
    3 0.840 0.751 0.712 0.658 0.579
    4 0.792 0.683 0.636 0.572 0.482
    5 0.747 0.621 0.567 0.497 0.402
    6 0.705 0.564 0.507 0.432 0.335
    7 0.665 0.513 0.452 0.376 0.279
    8 0.627 0.467 0.404 0.327 0.233
    9 0.592 0.424 0.361 0.284 0.194
    10 0.558 0.386 0.322 0.247 0.162

The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 20% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are 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 Period
Proposal Bravo
3 years 8 months
Proposal Tango
2 years 11 months
Proposal Uniform
3 years 11 months
Proposal Victor
2 years 5 months

 

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 decimal place.

  Average Rate of Return
Proposal Bravo           %
Proposal Tango 21.30 %
Proposal Uniform            %
Proposal Victor             %
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