The management of Indiana Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Income from Operations Net Cash Flow 1 $100,000 $180,000 2 60,000 120,000 3 30,000 100,000 4 10,000 90,000 5 10,000 90,000 The average rate of return for this investment is a.53% b.18% c.10% d.21%
The management of Indiana Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Income from Operations Net Cash Flow 1 $100,000 $180,000 2 60,000 120,000 3 30,000 100,000 4 10,000 90,000 5 10,000 90,000 The average rate of return for this investment is a.53% b.18% c.10% d.21%
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 management of Indiana Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment:
The average rate ofreturn for this investment is
Year |
Income from Operations |
Net Cash Flow |
||
| 1 | $100,000 | $180,000 | ||
| 2 | 60,000 | 120,000 | ||
| 3 | 30,000 | 100,000 | ||
| 4 | 10,000 | 90,000 | ||
| 5 | 10,000 | 90,000 |
The average rate of
a.53%
b.18%
c.10%
d.21%
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