Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $60,000 $120,000 2 50,000 110,000 3 45,000 105,000 4 30,000 90,000 5 20,000 80,000 $205,000 $505,000 The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below: Year Present Value of $1 at 12% 1 0.893 2 0.797 3 0.712 4 0.636 5 0.567 a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places. fill in the blank 1 % b. Determine the net present value. $ fill in the blank 2
Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $60,000 $120,000 2 50,000 110,000 3 45,000 105,000 4 30,000 90,000 5 20,000 80,000 $205,000 $505,000 The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below: Year Present Value of $1 at 12% 1 0.893 2 0.797 3 0.712 4 0.636 5 0.567 a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places. fill in the blank 1 % b. Determine the net present value. $ fill in the blank 2
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
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Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows:
| Year | Net Income | Net Cash Flow | ||
| 1 | $60,000 | $120,000 | ||
| 2 | 50,000 | 110,000 | ||
| 3 | 45,000 | 105,000 | ||
| 4 | 30,000 | 90,000 | ||
| 5 | 20,000 | 80,000 | ||
| $205,000 | $505,000 |
The company's minimum desired
| Year | Present Value of $1 at 12% |
| 1 | 0.893 |
| 2 | 0.797 |
| 3 | 0.712 |
| 4 | 0.636 |
| 5 | 0.567 |
a. Determine the average rate of
fill in the blank 1 %
b. Determine the net present value.
$ fill in the blank 2
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