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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

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

FINANCIAL ACCOUNTING
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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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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