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
Related questions
Question
please read the first direction on picture one, and answer on picture 2. thank you for your time.
Transcribed Image Text:Problem 26-1A
a
b
Question 1
Average annual rate of return for both projects
Net Present Value for Front-End Loader
Net Present Value for Greenhouse Fixtures
I
%
Transcribed Image Text:PR26-1A Average rate of return method, net present value method, and
analysis
The capital investment committee of Nature's Portrait Landscaping Company is
considering two capital investments. The estimated income from operations and
net cash flows from each investment are as follows:
2
3
4
5
Total
Front-End Loader
Income from
Year Operations
1
$25,000
20,000
7,000
3,000
1,250
$56,250
Instructions:
Net Cash
Flow
$40,000
35,000
22,000
18,000
16,250
$131,250
Greenhouse Fixtures
Income from
Operations
$11,250
11,250
11,250
11,250
11,250
$56,250
Net Cash
Flow
$26,250
26,250
26,250
26,250
26,250
$131,250
Each project requires an investment of $75,000. Straight-line depreciation will be
used, and no residual value is expected. The committee has selected a rate of 12%
for purposes of the net present value analysis.
1. Compute the following:
a. The average rate of return for each investment. Round to one decimal
point.
b. The net present value for each investment. Use the present value of $1
table appearing in this chapter (Exhibit 2). Round present values to the
nearest dollar.
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