Question

a. Determine the average rate of return for a project that is estimated to yield total...

a. Determine the average rate of return for a project that is estimated to yield total income of \$419,900 over five years, has a cost of \$769,100, and has a \$114,900 residual value. Round to the nearest whole number.
%

b.

Net Present Value

A project has estimated annual net cash flows of \$8,750 for three years and is estimated to cost \$50,000. Assume a minimum acceptable rate of return of 15%. Use the  Present Value of an Annuity of \$1 at Compound Interest table below.

 Present Value of an Annuity of \$1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192

Determine (a) the net present value of the project and (b) the present value index. If required, use the minus sign to indicate a negative net present value.

 Net present value of the project (round to the nearest dollar) \$ Present value index (rounded to two decimal places)

 a Average annual net income 83980 =419900/5 Divide by Average Investment 442000 =(769100+114900)/2 Average rate of return 19% b Annual net cash flows 8750 X PV factor 2.283 Present value of Annual net cash flows 19976 Less: Investment cost 50000 Net present value of the project -30024 Present value of Annual net cash flows 19976 Divide by Investment cost 50000 Present value index 0.40

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