Question :
147. Bonavita Inc. considering a capital investment proposal that costs $227,500 : 1233939
147. Bonavita Inc. is considering a capital investment proposal that costs $227,500 and has an estimated life of four years and no residual value. The estimated net cash flows are as follows:
Year
Net Cash Flow
1
$97,500
2
$80,000
3
$60,000
4
$40,000
The minimum desired rate of return for net present value analysis is 10%. The present value of $1 at compound interest rates of 10% for 1, 2, 3, and 4 years is .909, .826, .751, and .683, respectively. Determine the net present value.
148. The net present value has been computed for Proposals P and Q. Relevant data are as follows:
Proposal P
Proposal Q
Amount to be invested
$265,000
$445,000
Total present value of net cash flow
286,500
425,000
Net present value
21,500
(20,000)
Determine the present value index for each proposal.
149. Williams Company is evaluating a project requiring a capital expenditure of $480,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows:
Year
Net Income
Net Cash Flow
1
$ 90,000
$210,000
2
80,000
200,000
3
40,000
160,000
4
30,000
150,000
$240,000
$720,000
The company’s minimum desired rate of return for net present value analysis is 15%. The present value of $1 at compound interest of 15% for 1, 2, 3, and 4 years is .870, .756, .658, and .572, respectively.Determine (a) the average rate of return on investment, using straight line depreciation, and (b) the net present value.
150. CAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project are as follows:
Year
Net Income
Net Cash Flow
1
$ 75,000
$285,000
2
102,000
290,000
3
109,500
190,000
4
36,000
125,000
$322,500
$890,000
The company’s minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712, and .636, respectively.Determine: (a) the average rate of return on investment, including the effect of depreciation on the investment, and (b) the net present value.
151. The internal rate of return method is used to analyze an $831,500 capital investment proposal with annual net cash flows of $250,000 for each of the six years of its useful life.
(a)
Determine a present value factor for an annuity of $1 which can be used in determining the internal rate of return.
(b)
Based on the factor determined in (a) and the portion of the present value of an annuity of $1 table presented below, determine the internal rate of return for the proposal.
Year
10%
15%
20%
1
0.909
0.870
0.833
2
1.736
1.626
1.528
3
2.487
2.283
2.106
4
3.170
2.855
2.589
5
3.791
3.353
2.991
6
4.355
3.785
3.326
7
4.868
4.160
3.605
