if you could please fill in the answers in the same table format of the question
ID: 2568875 • Letter: I
Question
if you could please fill in the answers in the same table format of the questions.
D 2 D 3 Bookmarks My Subscriptions. Y G Goo lew Tab M Accounting My Nevada Hearne Company has a number of potential capital investments Because these projects vary in nature, Project 1: Retooling Manufacturing Facility This project would require an initial investment of $5,800 ,000 It would generate $1,036,000 in Project 2: Purchase Patent for New Product The patent would cost $4,065,000, which would be fully amortized over five years Production of this product wouid generate $894 300 additional annual Project 3: Purchase a New Fleet of Delivery Trucks Heame coukd purchase 25 new delivery trucks at a cost of S210,000 each. The fleet would have a useful iniial investment, and tme horizon, management s finding it doficut to compare them Assume straight ine depreciation method is used additional net cash flow each year The new machinery has a useful life of eight years net income for Heame resulting in $1,155,000 of additional net income per year lite of 10 years, and each truck would have a salvage value of $6,900 Purchasing the fet would alow Hearne to expand ts customer tentory Required 1. Determine each project's accounting rate of returm (Round your answers to 2 decimal places.) of R Project 1 Project 2 Project 3 2 Determine each project's payback perod (Round your answers to 2 decimal places) Project 1 Project 2 Project 3 Years ears 1 ) (Use appropriate factoris) from the tables provided. Round your 3. Using a discount rate of 10 percent calculate the net present value of each intermediate calculations to 4 decimal places and final answers to 2 decimal places.) 6:06 PM 11/11/2012Explanation / Answer
Answer 1 Project 1 Depreciation per year = (Cost - salvage value) / useful life = ($5800000 - $1228000)/8 years = $5,71,500 Project 1 Accounting profit per year = Additional net cash flow - depreciation = $1036000 - $571500 = $4,64,500 Project 1 Accounting rate of return = Accounting profit / Initial investment = $464500 / $5800000 = 8.01% Project 2 Accounting rate of return = Additional annual net income / Initial Patent cost = $894300 / $4065000 = 22% Project 3 Accounting rate of return = Additional annual net income / Cost of delivery trucks Project 3 Accounting rate of return = $1155000 / ($210000*25 trucks) = 22% Accounting rate of return Project 1 8.01% Project 2 22% Project 3 22% Answer 2 Project 1 Payback period = Initial Investment / Additional Net cash flow = $5800000/$1036000 = 5.60 years Project 2 additional net cash flow per year = Additional annual net income + patent amortization per year = $894300 + $813000 = $1707300 Project 2 Payback period = Patent cost / Additional net cash flow per year = $4065000 / $1707300 = 2.38 years Project 3 additional net cash flow per year = Additional annual net income + depreciation per year Depreciation per year = ($5250000 - $172500)/10 years = $507750 Project 3 additional net cash flow per year = $1155000+$507750 = $1662750 Project 3 Payback period = Initial Investment in truck / Additional net cash flow per year = $5250000/$1662750 = 3.16 Payback period Project 1 5.60 years Project 2 2.38 years Project 3 3.16 years Answer 3 Calculation of NPV Year Discount factor @ 10% Project 1 Project 2 Project 3 Cash flow Present Value Cash flow Present Value Cash flow Present Value 0 1 -$5,800,000 -$5,800,000 -$4,065,000 -$4,065,000 -$5,250,000 -$5,250,000 1 0.909091 $1,036,000 $941,818 $1,707,300 $1,552,091 $1,662,750 $1,511,591 2 0.826446 $1,036,000 $856,198 $1,707,300 $1,410,992 $1,662,750 $1,374,174 3 0.751315 $1,036,000 $778,362 $1,707,300 $1,282,720 $1,662,750 $1,249,249 4 0.683013 $1,036,000 $707,602 $1,707,300 $1,166,109 $1,662,750 $1,135,681 5 0.620921 $1,036,000 $643,274 $1,707,300 $1,060,099 $1,662,750 $1,032,437 6 0.564474 $1,036,000 $584,795 $1,662,750 $938,579 7 0.513158 $1,036,000 $531,632 $1,662,750 $853,254 8 0.466507 $2,264,000 $1,056,173 $1,662,750 $775,685 9 0.424098 $1,662,750 $705,168 10 0.385543 $1,835,250 $707,568 NPV $299,855 $2,407,010 $5,033,385 NPV Project 1 $299,855 Project 2 $2,407,010 Project 3 $5,033,385 Answer 4 Profitability Index = Present value of all future cash flows/Initial Investment Initial Investment Present Value of all future cash flows Profitability Index Rank Project 1 $5,800,000 $6,099,855 1.05 3 Project 2 $4,065,000 $6,472,010 1.59 2 Project 3 $5,250,000 $10,283,385 1.96 1
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