The ABC company is thinking of purchasing a new luxury coach to sustain its prestige client business. The purchase cost of the vehicle, including license plates and delivery, is $120,000. The company anticipates that it will use the vehicle for five years and be able to sell it at the end of that period for $40,000. The revenue the company expects to generate using the coach is as follows: By the end of year net profit before depreciation ($) 1 2 3 4 5 30,000 30,000 30,000 25,000 20,000 What is the accounting rate of return for this investment? Workout the payback period for the investment proposed being considered by ABC company
The ABC company is thinking of purchasing a new luxury coach to sustain its prestige client business. The purchase cost of the vehicle, including license plates and delivery, is $120,000. The company anticipates that it will use the vehicle for five years and be able to sell it at the end of that period for $40,000. The revenue the company expects to generate using the coach is as follows: By the end of year net profit before depreciation ($) 1 2 3 4 5 30,000 30,000 30,000 25,000 20,000 What is the accounting rate of return for this investment? Workout the payback period for the investment proposed being considered by ABC company
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 ABC company is thinking of purchasing a new luxury coach to sustain its prestige client business. The purchase cost of the vehicle, including license plates and delivery, is $120,000. The company anticipates that it will use the vehicle for five years and be able to sell it at the end of that period for $40,000. The revenue the company expects to generate using the coach is as follows:
|
By the end of year |
net profit before |
|
1 2 3 4 5 |
30,000 30,000 30,000 25,000 20,000 |
- What is the accounting rate of
return for this investment ? - Workout the payback period for the investment proposed being considered by ABC company.
- The following indices monitor the annual profits of J.A company.
|
year |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
Index 1 Index 2 |
100 |
138 |
162 |
196 |
220 100 |
125 |
140 |
165 |
- What are the base years for the indices?
- If the company had not changed to index 2, what values would index 1 have in year 6 to 8?
- What values does index 2 have in year1 to 4?
- If the company made a profit of $4.86 million in year 1, how much did it make in the other years?
- If you invest SR2000 how much will you have after three years if the interest rate is 12% a year?
- Rockwall trust is thinking of investing in a new technology company. There are two possible investments, whose profits can be summarized as follows: option 1 gives a profit of $300,000 in five years’ time. Option 2 gives a profit of $500,000 in 10 years’ time. Which option should the company choose if it uses a discount rate of 20% a year for future profits?
- What is the
net present value of the proposed investment in the luxury coach by the ABC company in question 1 of this assignment? Use a 10% interest rate.
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