Sally Omar is the manager of the office products division of
Dynatech Enterprises. In this position, her annual bonus is based
on an appraisal of return on investment (ROI) measured as Division
income ÷ End-of-year division assets (net of accumulated
depreciation). Sally does not receive a bonus unless ROI is 9
percent or higher.
Currently, Sally is considering investing $40,992,000 in
modernization of the division plant in Tennessee. She estimates
that the project will generate cash savings of $7,407,000 per year
for 8 years. The plant improvements will be depreciated over 8
years ($40,992,000 ÷ 8 years = $5,124,000). Thus, the annual effect
on income will be $2,283,000 ($7,407,000 - $5,124,000).
Click here to view factor tables
Using a discount rate of 9 percent, calculate the NPV of the modernization project. (Round present value factor calculations to 4 decimal places, e.g. 1.2151 and final answer to 0 decimal places, e.g. 125. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
| NPV | $enter the net present value in dollars rounded to 0 decimal places |
eTextbook and Media
Calculate the ROI of the project each year over its 8-year life. (Calculate ROI as effect on income divided by end-of-year book value. Note that the value of ROI is not defined at the end of year 8 when book value is zero.) (Round answers to 2 decimal places, e.g. 15.25%.)
|
Year |
ROI |
|
|---|---|---|
|
1 |
enter percentages rounded to 2 decimal places % | |
|
2 |
enter percentages rounded to 2 decimal places % | |
|
3 |
enter percentages rounded to 2 decimal places % | |
|
4 |
enter percentages rounded to 2 decimal places % | |
|
5 |
enter percentages rounded to 2 decimal places % | |
|
6 |
enter percentages rounded to 2 decimal places % | |
|
7 |
enter percentages rounded to 2 decimal places % |
| year | Annual Income(A) |
PVF@9% (B) |
PV of Income(A×B) | Asset net of depreciation(C) | ROI(%) (A÷C) |
| 1 | 2,283,000 | 0.9174 | 2,094,424.2 | 35,868,000 | 6.36 |
| 2 | 2,283,000 | 0.8416 | 1,921,372.8 | 30,744,000 | 7.42 |
| 3 | 2,283,000 | 0.7721 | 1,762,704.3 | 25,620,000 | 8.9 |
| 4 | 2,283,000 | 0.7084 | 1,617,277.2 | 20,496,000 | 11.13 |
| 5 | 2,283,000 | 0.6499 | 1,483,721.7 | 15,372,000 | 14.85 |
| 6 | 2,283,000 | 0.5962 | 1,361,124.6 | 10,248,000 | 22.27 |
| 7 | 2,283,000 | 0.5470 | 1,248,801 | 5,124,000 | 44.55 |
| 8 | 2,283,000 | 0.5018 | 1,145,609.4 | 0 | 0 |
| Net present value= $12,635,035.2 |
please let me know if you need any further information.
please don't forget to like my answer.
Thank you.
Get Answers For Free
Most questions answered within 1 hours.