Svalbard Swing Company uses the accounting rate of return to evaluate investment projects. Management accepts projects that earn a return of 14% or more. They are considering two alternative investment proposals with the following data: Initial Investment Useful Life Estimated annual net income Salvage Value Depreciation Method Only Statement #1 is true Only Statement #2 is true Evaluate the following statements: 1. The accounting rate of return for Project #1 is 10% 2. Using the accounting rate of return, Svalbard Company will only accept Project #2 Both Statements are true Project #1 $300,000 5 years $30,000 $100,000 SL Both Statements are false Project #2 $400,000 8 years $46,000 $60,000 SL

Svalbard Swing Company uses the accounting rate of return to evaluate investment projects. Management accepts projects that earn a return of 14% or more. They are considering two alternative investment proposals with the following data: Initial Investment Useful Life Estimated annual net income Salvage Value Depreciation Method Only Statement #1 is true Only Statement #2 is true Evaluate the following statements: 1. The accounting rate of return for Project #1 is 10% 2. Using the accounting rate of return, Svalbard Company will only accept Project #2 Both Statements are true Project #1 $300,000 5 years $30,000 $100,000 SL Both Statements are false Project #2 $400,000 8 years $46,000 $60,000 SL

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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The table below shows internal rate of retum for three investment projects A, B and C and there differences. By capital investment, A
Calculations to determine which – if any – additional investment opportunities should be undertaken. 1. If the projects are divisible 2. If the projects are not divisible .
Is it okay to solve the payback period using the initial investment divided by the after-tax cashflow?
Calculate the internal rate of return for project B
Net present value Using a cost of capital of 15%, calculate the net present value for the project shown in the following table and indicate whether it is acceptable, The net present value (NPV) of the project is $. (Round to the nearest cent.) Is the project acceptable? (Select the best answer below.) O Yes No Data table (Click on the icon here in order to copy the contents of the data table below a spreadsheet.) Initial investment (CF) Year (0) 1 2 3 4 5 6 7 8 9 10 -1,156,000 Cash inflows (CF) $75,000 $140,000 $192,000 $254,000 $313,000 $378,000 $271,000 $97,000 $49,000 $26,000
(a) Calculate the payback period for each project. (b) Calculate the net present value (NPV) for each project. (c) Calculate the profitability index of each project. (d) Explain to the company which project should be implemented. Support your answer.
Pecos Corporation is considering several investment proposals, as shown below: Investment required Present value of future net Investment Proposal OD, B, C, A O B, D, C, A OB, D, A, C O A, C, B, D A B $ 80,000 $ 100,000 C $ 60,000 D $ 75,000 cash flows $ 96,000 $ 150,000 $ 84,000 $ 120,000 If the project profitability index is used, the ranking of the projects from most to least profitable would be:
The management of Peridot Inc. is submitting a proposal to the Board of Directors for a new facility with the following cash flows. Year Cash flow 0 -214 1 52 2 61 3 74 4 82 The company's hurdle rate is 9%. internal rate of return for the proposed project is closest to: A. 10.15%. B. 9.06%. C. 9.00%.
Use the information provided to answer the questions.Use the information provided below to calculate the following. Where applicable, use the presentvalue tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. QUESTION) Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places). INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest inone of them. You are given the following projected data:Project A Project BInitial cost R300 000 R300 000Scrap value R40 000 0Depreciation per year R52 000 R60 000Net profitYear 1 R20 000Year 2 R30 000Year 3 R50 000Year 4 R60 000Year 5 R10 000Net cash flowsYear 1 R90 000Year 2 R90 000Year 3 R90 000Year 4 R90 000Year 5 R90 000 Additional informationThe discount rate used by the company is 12%. Transcribed Image Text:Number of Periods 1 2 3 4 5 6 7 8 m 10 11 12 13 14 15 1% 2% 0.9901 0.9804 0.9709 3% 3.9020 3.8077…
Required: i.Determine the initial capital of Project A and Project B. If Project A and Project B are mutually exclusive, calculate the Net Present Value (NPV) of Project A and Project B given that the cost of capital is 5%.Based on the NPV method, explain with reason which project should be invested. ii. Axis Sdn. Bhd.’s current investment policy is to accept only investments that are recoverable within 3 years.Calculate the discounted payback period of Project A and Project B if the cost of capital is5%. Based on the calculated discounted payback period of Project A and Project B, advise the company on which new project to select if they are mutually exclusive.
The senior management of Netherworld Ltd is evaluating four project proposals and will select one project to invest in. The following summary information is available: Project Code Initial Investment Required Net Present Value Project life (years) A 172,000 48,000 7 B 155,000 48,000 12 C 115,000 39,100 7 D 141,000 38,500 3 Required: Calculate the profitability index for each project. In order of preference, rank the four projects in terms of net present value and the profitability index. Which project do you think should be chosen?

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