(c)Compute the annual rate of return for each project. (Round answers to 1 decimal place, e.g. 15.2.)Annual rate of returnSave for LaterProject RedWhich project should Pronghorn select?Save for Later%Project Blue%Attempts: 0 of 1 usedAttempts: 0 of 1 usedSubmit AnswerSubmit Answer Pronghorn Company is considering two capital investment proposals. Relevant data on each project are as follows:Capital investmentAnnual net incomeEstimated useful lifeClick here to view PV tables.(a)(b)Project Red$474,00038,0008 yearsDepreciation is computed by the straight-line method with no salvage value. Pronghorn requires an 8% rate of return on all new investments. The present value of 1 for 8 periods at 8% is 0.54027 and the present value of an annuity of 1 for 8 periods is5.74664.Cash payback periodProject BlueNet present value $674,000Your answer has been saved. See score details after the due date.Compute the cash payback period for each project. (Round answers to 1 decimal place, e.g. 15.2.)Save for Later73,0008 yearsProject RedProject Red4.9 yearsCompute the net present value for each project. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answers to O decimal places, e.g. 5,275.)Project Blue$4.3Project BlueyearsAttempts: 1 of 1 usedAttempts: 0 of 1 usedSubmit Answer

(a) Cash payback period for each project: Project Red Project Blue Cash payback period 4.9 years 4.3 years (b) Calculation of net present value for each project: Net present value= Present value of cash inflow - Cash outflow today Project Red: Net present value= Present value of cash inflow - Cash outflow today = $558860.74 - $474000 = $84860.74 Cash outflow today: $4,74,000 Present value of cash inflow: Annual cash inflow X Present value of annuity factor(8%,8 years) : $97250 X 5.74664 : $558860.74 Annual cash flow: annual net income: $38000 + Depreciation $59250 : $97250 Project Blue: Net present value= Present value of cash inflow - Cash outflow today = $903659.14 - $674000 = $229659.14 Cash outflow today: $6,74,000 Present value of cash inflow: Annual cash inflow X Present value of annuity factor(8%,8 years) : $157250 X 5.74664 : $903659.14 Annual cash flow: annual net income: $73000 + Depreciation $84250 : $157250 (c) Annual Rate of Return for each project: = annual net income/Capital investment Project Red: = 38,000/474000 = 8.02% Project Blue: = 73,000/674000 = 10.83% (d) which project should Pronghorn select: Project Blue should be selected bcoz of following: - Annual Rate of Return of Project Blue is 10.83% which is higher than Project red that is 8.02% - Net present value of Project Blue is $229659.14 which is higher than NPV of Project Red that is $84860.74

Business

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Pronghorn Company is considering two capital investment proposals. Relevant data on each project are as follows: Project Red $474,000 38,000 8 years Capital investment Annual net income Estimated useful life Project Blue 674,000 73,000 8 years Depreciation is computed by the straight-line method with no salvage value. Pronghorn requires an 8% rate of return on al 5.74664. Click here to view PV tables.

Pronghorn Company is considering two capital investment proposals. Relevant data on each project are as follows: Project Red $474,000 38,000 8 years Capital investment Annual net income Estimated useful life Project Blue 674,000 73,000 8 years Depreciation is computed by the straight-line method with no salvage value. Pronghorn requires an 8% rate of return on al 5.74664. Click here to view PV tables.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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