Instructions: You\'ll only answer question 3 & 4. 1) ONLY ONLY ONLY answer if yo
ID: 2515727 • Letter: I
Question
Instructions:
You'll only answer question 3 & 4.
1) ONLY ONLY ONLY answer if you know the CORRECT answer
2) SHOW SHOW the work (steps) on how you got that number.
Pre-Face:
Question 2: I have typed these answers & were incorrect (269,071.80) , 269,071.80 , (293,298.00) , (269,071.85)
Quesiton 4 Project 1 : I have typed these answers & were incorrect 1.8842 , 0.9528
Quesiton 4 Project 3 : I have typed these answers & were incorrect 0.9528 , 1.8842
PA11-3 Comparing, Prioritizing Multiple Projects [LO 11-1, 11-2, 11-3, 11-6] Hearne Company has a number of potential capital investments. Because these projects vary in nature initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used Project 1: Retooling Manufacturing Facility This project would require an initial investment of $5,700,000. It would generate $1,018,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,204,000 Project 2: Purchase Patent for New Product The patent would cost $3,995,000, which would be fully amortized over five years. Production of this product would generate $838,950 additional annual net income for Hearne Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $200,000 each. The fleet would have a useful life of 10 years, and each truck would have a salvage value of $6,700. Purchasing the fleet would allow Hearne to expand its customer territory resulting in $1,050,000 of additional net income per year. Required: 1. Determine each projects accounting rate of return. (Round your answers to 2 decimal places.) Answer is complete and correct. counting Rate o 8.00 096 21.0001% 21.00% turn Project 1 Project 2 Project 3 2. Determine each projects payback period. (Round your answers to 2 decimal places.) Answer is complete and correct. Project 1 Project 2 Project 3 Payback Period 5.60Years 2.44 Years 3.26YearsExplanation / Answer
Question 2
Net Present Value - Project 1
Net Present Value = - $57,00,000 + ($1018000+$562000)(PVAF 12%, 9 Years)
= - $57,00,000 + ($15,80,000 x 5.3349)
= - $57,00,000 + $ 8429142
Net Present Value = $ 2729142
Depreciation = (5700000-1204000)/8 =562000
Question 4
Profitability Index
Project 1
= Present Value of Inflow / Present Value of Outflow
= $ 8429142 / $5700000
= 1.478797
Project 3
= Present Value of Inflow / Present Value of Outflow
= $9486476.25 / $50,00,000
= 1.897295
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