The capital investment committee of Iguana Inc. is considering two capital investments. The estimated op from each investment are as follows: Year 1 2 3 Robotic Assembler Operating Income $60,000 60,000 60,000 Robotic Assembler Net Cash Flow $185,000 185,000 185,000 Warehouse Operating Income $126,000 96,000 48,000 Warehouse Net Cash Flow $296,000 250,000 176,000

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Chapter1: Financial Statements And Business Decisions
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The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows
from each investment are as follows:
Year
1
2
3
4
5
Total
Year
1
2
3
4
5
6
7
8
9
Robotic Assembler
Operating Income
10
Each project requires an investment of $600,000. Straight-line depreciation will be used, and no residual value is expected. The committee
has selected a rate of 10% for purposes of the net present value analysis.
Present Value of $1 at Compound Interest
6%
10%
15%
Required:
$60,000
60,000
60,000
60,000
60,000
$300,000
0.943
0.890
0.840
0.792
Warehouse
0.747
0.705
0.665
0.627
0.592
0.558
Robotic Assembler
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
Amount to be invested
0.386
Net present value
Robotic Assembler
Net Cash Flow
Present value of net cash flow
$185,000
185,000
185,000
185,000
185,000
$925,000
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
$
Warehouse
Operating
Income
1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.
Average Rate of Return
%
$126,000
96,000
48,000
21,000
9,000
$300,000
%
20%
0.833
0.694
0.579
0.482
1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest
dollar. If required, use the minus sign to indicate a negative net present value.
Robotic Assembler
Warehouse
Warehouse
Net Cash Flow
$296,000
250,000
176,000
120,000
83,000
$925,000
0.402
0.335
0.279
0.233
0.194
0.162
Transcribed Image Text:The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 8 9 Robotic Assembler Operating Income 10 Each project requires an investment of $600,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 6% 10% 15% Required: $60,000 60,000 60,000 60,000 60,000 $300,000 0.943 0.890 0.840 0.792 Warehouse 0.747 0.705 0.665 0.627 0.592 0.558 Robotic Assembler 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 Amount to be invested 0.386 Net present value Robotic Assembler Net Cash Flow Present value of net cash flow $185,000 185,000 185,000 185,000 185,000 $925,000 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 $ Warehouse Operating Income 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return % $126,000 96,000 48,000 21,000 9,000 $300,000 % 20% 0.833 0.694 0.579 0.482 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value. Robotic Assembler Warehouse Warehouse Net Cash Flow $296,000 250,000 176,000 120,000 83,000 $925,000 0.402 0.335 0.279 0.233 0.194 0.162
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