l Ul is replaced the owing assumptions in the Write a memo determine if the old

Question

l Ul is replaced the owing assumptions in the Write a memo determine if the old equipment should be replaced P26-5B decision to old explaining any or should be ignored alopa to replace the equipment vestment Col is three long-term capital investment proposals. ach Compute annual rate of return, has a useful life of 5 years. Relevant data on each project are as follows. cash payback, and net present Capital investment Project Ric Project Rac Project Roe (SO 9 $140,000 Annual net income: $150,000 $180,000 Year 1 13,000 18,000 27,000 13,000 17,000 22,000 13,000 13.000 16,000 13,000 12.000 13.000 13,000 12,000 Tota 90,000 69,000 65,000 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15% Instructions return for each project. (Round to one decimal.) (a) Compute the annual rate of (Round to two b) the cash payback period each project. to nearest dollar. (e) Compute the net present value for each project. (Round you recommend (d) the projects on each of the foregoing bases. Which project do return, t a midwestern state university located approxi- Compute annual rate of the students attending the university are from the cash payback, and net present P26 SR Cindi Austen is an accounting maj

Explanation / Answer

Ric : Dep SLN = 140000/5=28000

So Net Inc pa = 13000+Dep written back = 13000+28000 = 41000

a. Annual Rat eof Ret = 41000/140000 = 29.3%

b. Cash PBP = Inv/Annual CF = 140000/41000 =3.41

c. NPV = NPV(15%,41000,41000,41000,41000,41000)-140000

= -$2,562

Rac : Dep SLN = 150000/5=30000

So Net Inc Y1= 18000+30000 = 48000

Y2 = 17000+30000 = 47000

Y3=13000+30000 =43000

Y4=12000+30000 =42000

Y5=9000+30000 = 39000

----------------------

Total 219000

SO Avge Anual CF = 219000/5 = 43800

a. Annual Rate of Ret = 43800/150000 = 29.2%

b. Cash PBP = Inv/Annual CF

= 3+(150000-48000-47000-43000)/42000 =3.29

c. NPV = NPV(15%,48000,47000,43000,42000,39000)-150000

= -$1,045

R0e : Dep SLN = 180000/5=36000

So Net Inc Y1= 27000+36000 =63000

Y2 = 22000+36000 = 58000

Y3=16000+36000 =52000

Y4=13000+36000 =49000

Y5=12000+36000 = 48000

----------------------

Total 270000

SO Avge Anual CF = 270000/5 = 54000

a. Annual Rat eof Ret = 54000/180000 = 30.0%

b. Cash PBP = Inv/Annual CF

= 3+(180000-63000-58000-52000)/49000 =3.14

c. NPV = NPV(15%,63000,58000,52000,49000,48000)-180000

= $4,710

Based on Anual Return, Proj Roe, Ric, Rac

Based on Cash PBP, Proj Roe,Rac, Ric

Based on NPV, Proj Roe, Rac, Ric

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