Net operating income $34,875 Required: 1. Compute payback period of the truck. Is the investment in new truck desirable if maximum desired payback period of the Euro Transport company is 5 years? 2. Compute the accounting rate of return promised by the truck. Would the Euro Transport company be interested in new truck if minimum required accounting rate of return is 12%? Q3- The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below: Project A $600,000 Project B Cost of equipment Working capital needed Annual cash inflows $600,000 $160,000 $120,000 $40,000 8 years Salvage value (scrap value) of equipment Project life The working capital required for project B will be released at the end of project life. Sunshine company uses an 18% discount rate. Required: Are the two projects comparable using net present value (NPV)? If yes, Select the best investment using net present value (NPV) 8 Years method. Q4- PQR company sells two products. The total fixed expenses of the company are 1,197,000. The monthly data of PQR is as follows: Products Product A Product B Total $1,400,000 $600,000 $2,000,000 Sales
Net operating income $34,875 Required: 1. Compute payback period of the truck. Is the investment in new truck desirable if maximum desired payback period of the Euro Transport company is 5 years? 2. Compute the accounting rate of return promised by the truck. Would the Euro Transport company be interested in new truck if minimum required accounting rate of return is 12%? Q3- The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below: Project A $600,000 Project B Cost of equipment Working capital needed Annual cash inflows $600,000 $160,000 $120,000 $40,000 8 years Salvage value (scrap value) of equipment Project life The working capital required for project B will be released at the end of project life. Sunshine company uses an 18% discount rate. Required: Are the two projects comparable using net present value (NPV)? If yes, Select the best investment using net present value (NPV) 8 Years method. Q4- PQR company sells two products. The total fixed expenses of the company are 1,197,000. The monthly data of PQR is as follows: Products Product A Product B Total $1,400,000 $600,000 $2,000,000 Sales
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Q3
Transcribed Image Text:Total operating expenses
$90,125
Net operating income
$34,875
Required:
1. Compute payback period off the truck. Is the investment in new truck
desirable if maximum desired payback period of the Euro Transport
company is 5 years?
2. Compute the accounting rate of return promised by the truck. Would the
Euro Transport company be interested in new truck if minimum required
accounting rate of return is 12%?
Q3- The Sunshine company is considering two projects, project A and
project B. Project A requires the purchase of an equipment but no
working capital investment whereas project B requires a working capital
investment but no equipment. The relevant information for net present
value analysis is given below:
Project A Project B
$600,000
Cost of equipment
Working capital needed
Annual cash inflows
$600,000
$160,000 $120,000
$40,000
Salvage value (scrap value) of equipment
Project life
The working capital required for project B will be released at the end of
project life. Sunshine company uses an 18% discount rate.
Required: Are the two projects comparable using net present value
(NPV)? If yes, Select the best investment using net present value (NPV)
8 years
8 Years
method.
Q4- PQR company sells two products. The total fixed expenses of the
company are 1,197,000. The monthly data of PQR is as follows:
Products
Product A
Product B
Total
$1,400,000 $600,000 $2,000,000
Sales
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