Practice 5: Flower City Inc. is evaluating two alternative investment proposals. Below are data for each proposal: Proposal A $84,000 5 years $ 4,000 8,200 Proposal B $96,000 6 years 0- $ 8,000 Initial investment cost Estimated useful life Estimated salvage value Estimated annual net income The following information was taken from present value tables: Present Value $1 due in 5 years, discounted at 12%.. . $1 due in 6 years, discounted at 12%.. $1 received annually for 5 years, disco $1 received annually for 6 years, discounted at 12 %. 567 507 3.605 4.111 ted at 12%.. All revenue and expenses other than depreciation will be received and paid in cash. The company uses a discount rate of 12% in evaluating all capital investments Compute the following for each proposal (round payback period to the nearest tenth of a year and round return on average investment to the nearest tenth of a percent) Part a Proposal A $ Proposal B $ (a) Annual net cash flow (b) Payback period (in years) (c) Average investment (d) Return on average investment: (e) Net present value: % $ $ Part b: Based on your analysis, which proposal appears to be the best investment?
Practice 5: Flower City Inc. is evaluating two alternative investment proposals. Below are data for each proposal: Proposal A $84,000 5 years $ 4,000 8,200 Proposal B $96,000 6 years 0- $ 8,000 Initial investment cost Estimated useful life Estimated salvage value Estimated annual net income The following information was taken from present value tables: Present Value $1 due in 5 years, discounted at 12%.. . $1 due in 6 years, discounted at 12%.. $1 received annually for 5 years, disco $1 received annually for 6 years, discounted at 12 %. 567 507 3.605 4.111 ted at 12%.. All revenue and expenses other than depreciation will be received and paid in cash. The company uses a discount rate of 12% in evaluating all capital investments Compute the following for each proposal (round payback period to the nearest tenth of a year and round return on average investment to the nearest tenth of a percent) Part a Proposal A $ Proposal B $ (a) Annual net cash flow (b) Payback period (in years) (c) Average investment (d) Return on average investment: (e) Net present value: % $ $ Part b: Based on your analysis, which proposal appears to be the best investment?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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please see attachemnet. There is a part a & oart b in the attached file.
Transcribed Image Text:Practice 5:
Flower City Inc. is evaluating two alternative investment proposals. Below are data for each
proposal:
Proposal A
$84,000
5 years
$ 4,000
8,200
Proposal B
$96,000
6 years
0-
$ 8,000
Initial investment cost
Estimated useful life
Estimated salvage value
Estimated annual net income
The following information was taken from present value tables:
Present Value
$1 due in 5 years, discounted at 12%.. .
$1 due in 6 years, discounted at 12%..
$1 received annually for 5 years, disco
$1 received annually for 6 years, discounted at 12 %.
567
507
3.605
4.111
ted at 12%..
All revenue and expenses other than depreciation will be received and paid in cash. The
company uses a discount rate of 12% in evaluating all capital investments
Compute the following for each proposal (round payback period to the nearest tenth of a year
and round return on average investment to the nearest tenth of a percent)
Part a
Proposal A
$
Proposal B
$
(a) Annual net cash flow
(b) Payback period (in years)
(c) Average investment
(d) Return on average investment:
(e) Net present value:
%
$
$
Part b: Based on your analysis, which proposal appears to be the best investment?
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