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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: Warehouse Operating Income Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 Robotic Assembler Operating Income 8 9 10 Required: $38,000 38,000 38,000 38,000 38,000 $190,000 Each project requires an investment of $400,000. 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% 20% 0.943 0.909 0.870 0.833 0.890 0.826 0.756 0.694 0.840 0.751 0.658 0.579 0.792 0.683 0.572 0.482 0.747 0.621 0.497 0.402 0.705 0.564 0.432 0.335 0.665 0.513 0.376 0.279 0.627 0.467 0.327 0.233 0.592 0.424 0.284 0.194 0.558 0.386 0.247 0.162 Warehouse Robotic Assembler Net Cash Flow Robotic Assembler $121,000 121,000 121,000 121,000 121,000 $605,000 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 $80,000 61,000 30,000 13,000 6,000 $190,000 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return % Warehouse Net Cash Flow % $194,000 163,000 115,000 79,000 54,000 $605,000

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: Warehouse Operating Income Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 Robotic Assembler Operating Income 8 9 10 Required: $38,000 38,000 38,000 38,000 38,000 $190,000 Each project requires an investment of $400,000. 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% 20% 0.943 0.909 0.870 0.833 0.890 0.826 0.756 0.694 0.840 0.751 0.658 0.579 0.792 0.683 0.572 0.482 0.747 0.621 0.497 0.402 0.705 0.564 0.432 0.335 0.665 0.513 0.376 0.279 0.627 0.467 0.327 0.233 0.592 0.424 0.284 0.194 0.558 0.386 0.247 0.162 Warehouse Robotic Assembler Net Cash Flow Robotic Assembler $121,000 121,000 121,000 121,000 121,000 $605,000 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 $80,000 61,000 30,000 13,000 6,000 $190,000 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return % Warehouse Net Cash Flow % $194,000 163,000 115,000 79,000 54,000 $605,000

Essentials Of Investments
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
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Total Year 1 2 3 Each project requires an investment of $400,000. 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% 0.943 0.909 0.893 0.870 0.890 0.826 0.797 0.840 0.751 0.712 0.792 0.683 0.636 0.747 0.621 0.567 0.705 0.564 0.507 0.513 0.452 0.467 0.404 0.424 0.361 0.322 4 5 6 7 8 9 10 $190,000 Required: 0.665 0.627 0.592 0.558 $605,000 0.386 Robotic Assembler Warehouse 12% 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 $190,000 % % 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return 0.194 0.162 $605,000 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 Present value of net cash flow Amount to be invested Net present value 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. The robotic assembler has a net present value because cash flows occur would be the more attractive. . in time compared to the warehouse. Thus, if only one of the two projects can be accepted, the
Transcribed Image Text:Total Year 1 2 3 Each project requires an investment of $400,000. 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% 0.943 0.909 0.893 0.870 0.890 0.826 0.797 0.840 0.751 0.712 0.792 0.683 0.636 0.747 0.621 0.567 0.705 0.564 0.507 0.513 0.452 0.467 0.404 0.424 0.361 0.322 4 5 6 7 8 9 10 $190,000 Required: 0.665 0.627 0.592 0.558 $605,000 0.386 Robotic Assembler Warehouse 12% 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 $190,000 % % 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return 0.194 0.162 $605,000 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 Present value of net cash flow Amount to be invested Net present value 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. The robotic assembler has a net present value because cash flows occur would be the more attractive. . in time compared to the warehouse. Thus, if only one of the two projects can be accepted, the
Average rate of return method, net present value method, and analysis for a service company 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: Warehouse Operating Income Year 1 2 3 4 5 Total Year 1 2 3 Robotic Assembler Operating Income 4 $38,000 38,000 38,000 38,000 38,000 $190,000 5 6 7 8 9 10 Required: 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 Each project requires an investment of $400,000. 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% 12% 15% 0.909 0.893 0.870 0.797 0.756 0.712 0.658 0.636 0.572 0.567 0.497 0.507 0.432 0.335 0.452 0.376 0.279 0.404 0.327 0.361 0.284 0.322 0.247 0.826 0.751 Robotic Assembler Warehouse Robotic Assembler Net Cash Flow 0.683 0.621 0.564 0.513 0.467 0.424 0.386 $121,000 121,000 121,000 121,000 121,000 $605,000 $80,000 61,000 30,000 13,000 6,000 $190,000 %% % 20% 0.833 0.694 0.579 0.482 0.402 Warehouse Net Cash Flow 0.233 0.194 0.162 $194,000 163,000 115,000 79,000 54,000 $605,000 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return
Transcribed Image Text:Average rate of return method, net present value method, and analysis for a service company 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: Warehouse Operating Income Year 1 2 3 4 5 Total Year 1 2 3 Robotic Assembler Operating Income 4 $38,000 38,000 38,000 38,000 38,000 $190,000 5 6 7 8 9 10 Required: 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 Each project requires an investment of $400,000. 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% 12% 15% 0.909 0.893 0.870 0.797 0.756 0.712 0.658 0.636 0.572 0.567 0.497 0.507 0.432 0.335 0.452 0.376 0.279 0.404 0.327 0.361 0.284 0.322 0.247 0.826 0.751 Robotic Assembler Warehouse Robotic Assembler Net Cash Flow 0.683 0.621 0.564 0.513 0.467 0.424 0.386 $121,000 121,000 121,000 121,000 121,000 $605,000 $80,000 61,000 30,000 13,000 6,000 $190,000 %% % 20% 0.833 0.694 0.579 0.482 0.402 Warehouse Net Cash Flow 0.233 0.194 0.162 $194,000 163,000 115,000 79,000 54,000 $605,000 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return
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