Bono Company estimates the following cash flows and depreciation on a project that will cost KWD200,000 and will last 10 years with no salvage value: Revenues Sales Operating expenses Rent expense Depreciation expense Miscellaneous expenses Net Income KWD26,000 20,000 8,000 KWD70,000 54,000 KWD16,000 Instructions (a) Calculate the expected annual rate of return on this project showing calculations to support your answer. (b) Calculate the cash payback on this project showing calculations to support your answer.

Bono Company estimates the following cash flows and depreciation on a project that will cost KWD200,000 and will last 10 years with no salvage value: Revenues Sales Operating expenses Rent expense Depreciation expense Miscellaneous expenses Net Income KWD26,000 20,000 8,000 KWD70,000 54,000 KWD16,000 Instructions (a) Calculate the expected annual rate of return on this project showing calculations to support your answer. (b) Calculate the cash payback on this project showing calculations to support your answer.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?
The Post Company is considering investing in two alternative projects: Investment Useful life (years) Estimated annual net cash inflows for useful life Residual value Depreciation method Required rate of return What is the accounting rate of return for Project 1? OA. 52.5% B. 20% OC. 30% OD. 7.5% Project 1 $200,000 4 $60,000 $20,000 Straight-line 15% Project 2 $260,000 8 $45,000 $16,000 Straight-line 10%
A potential project involves an initial investment in machinery of RO.1,000,000 and has the following cash inflows:Year 1 – RO.250,000Year 2 – RO.350,000Year 3 – RO.200,000Year 4 – RO.400,000At the end of year 4, the machinery will be sold for RO.600,000.Calculate the accounting rate of return based on average investment.NOTE (DEDUCT THE DEPRECIATION TO ARRIVE AT THE CORRECT AVERAGE PROFIT) a. None of the options b. 35% c. 20% d. 25% Clear my choice
: According to the data given in the table below and to the annual equivalent expenditure method, which project should be preferred? Cash flows Project A Project B Project C Investment Amount (TL) 1500000 3475000 5900000 Operating expense (TL / year) Salvage Value (TL) Economic life of the project (years) Discount rate (%) 750000 500000 300000 250000 150000 100000 20 18 15 20 18 15
Use the following information provided to answer the question below: INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest in one of them. You ar given the following projected data: Initial cost Scrap value Depreciation per year Net profit Year 1 Year 2 Year 3 Year 4 Year 5 Net cash flows Year 1 Year 2 Year 3 Year 4 Year 5 Project A R300 000 R40 000 R52 000 R20 000 R30 000 R50 000 R60 000 R10 000 Project B R300 000 0 R60 000 R90 000 R90 000 R90 000 R90 000 R90 000
Q4. The cash flow details of a public project is as follows Initial cost =BD 210000 Annual operating cost = BD 10000 Worth of annual benefits = BD 12,000 Worth of annual disbenefits = BD 1245 Salvage value = BD 150000 Interest rate per year = 8% and useful lie = 30 Years Using benefit-cost ratio method and find out the economical acceptability of the public project. Use PW and AW methods to find out the equivalent worth of costs, benefits and disbenefits, also discuss why it is profitable(Use excel)
A project requires an initial investment of $500,000. The following cash flows have beenestimated for the life of the project:Year Cash flow ($)1 120,0002 150,0003 180,0004 160,000 a. The company uses NPV to appraise projects. Using a discount rate of 7%, calculate the NPVof the project and recommend whether the project should be undertaken.
ed Your company has a project available with the following cash flows: Year Cash Flow 0 -$80,900 12345 21,600 25,200 31,000 26,100 20,000 If the required return is 15 percent, should the project be accepted based on the IRR?
Below are information relating to three (3) possible projects. Evaluate the projects by filling up the blanks provided for the final answers. Show computations in the yellow pad. Net Cash outlay Annual net cash inflows Annual depreciation expense Expected recovery period Cost of capital Discounted payback period Internal rate of return (approximate) Net Present Value (NPV) Simple Accounting Rate of Return Ranking May P300,000 50,000 20,000 10 years 16% June P120,000 35,000 18,000 6 years 18% Dianay P150,000 55,000 25,000 5 years 22%
A four-year project has an initial cost of $20 000, net annual cash inflows of $10 000, and a salvage value of $5 000. Which of the following gives the project's internal rate of return (i*)? -20 000(F/P, i*, 4) + 10 000 + 5 000 = 0 -20 000(A/P, i*, 4) + 10 000 + 5 000(A/F, i*, 4) = 0 -20 000(A/F, i*, 4) + 10 000 + 5 000(A/P, i*, 4) = 0 -20 000(P/F, i*, 4) + 10 000 + 5 000(A/F, i*, 4) = 0
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$29,000 −$29000 1 14,400 4,300 2 12,300 9,800 3 9,200 15,200 4 5,100 16,800 a) What is the Internal Rate of Return (IRR) for each of these projects? b) Using the IRR decision rule, which project should the company accept? c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects? d) Using the NPV decision rule, which project should the company accept? e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?