The following data are accumulated by Lone Star Security in evaluating two competing investment proposals. Category Surveillance Equipment Patrol Truck Amount of Investment $40,500 $55,000 Useful life 8 years 11 years Estimated residual value $3,000 $6,000 Estimated total income over the useful life $25,000 $38,700 Determine the expected average rate of return for each proposal.
The following data are accumulated by Lone Star Security in evaluating two competing investment proposals. Category Surveillance Equipment Patrol Truck Amount of Investment $40,500 $55,000 Useful life 8 years 11 years Estimated residual value $3,000 $6,000 Estimated total income over the useful life $25,000 $38,700 Determine the expected average rate of return for each proposal.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
- The following data are accumulated by Lone Star Security in evaluating two competing investment proposals.
Category |
Surveillance Equipment |
Patrol Truck |
Amount of Investment |
$40,500 |
$55,000 |
Useful life |
8 years |
11 years |
Estimated residual value |
$3,000 |
$6,000 |
Estimated total income over the useful life |
$25,000 |
$38,700 |
Determine the expected average
Year |
Net Income |
Net |
Year 1 |
$43,500 |
$81,000 |
Year 2 |
26,500 |
64,000 |
Year 3 |
13,500 |
50,500 |
Year 4 |
2,900 |
40,000 |
- The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life:
- Assuming that the desired rate of return is 15%, determine the
net present value for the proposal. Use the table of the present value of $1 appearing in Exhibit 2 of this chapter. - Would management be likely to look with favor on the proposal? Explain.
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