Question

Average Rate of Return

The following data are accumulated by Lone Peak Inc. in evaluating two competing capital investment proposals:

3D Printer |
Truck |
||||

Amount of investment | $56,000 | $76,000 | |||

Useful life | 4 years | 9 years | |||

Estimated residual value | 0 | 0 | |||

Estimated total income over the useful life | $8,960 | $37,620 |

Determine the expected average rate of return for each proposal. If required, round your answers to one decimal place.

3D Printer | % |

Truck | % |

Answer #1

Average Rate of Return
The following data are accumulated by Lone Peak Inc. in
evaluating two competing capital investment proposals:
3D Printer
Truck
Amount of investment
$40,000
$50,000
Useful life
7 years
10 years
Estimated residual value
$3,000
$6,000
Estimated total income over the useful life
$24,080
$36,400
Determine the expected average rate of return for each proposal.
If required, round to the nearest whole percent.
3D Printer
%
Truck
%

Average Rate of Return
The following data are accumulated by McDermott Motors Inc.
evaluating two competing capital investment proposals:
Testing Equipment
Diagnostic Software
Amount of investment
$60,000
$64,000
Useful life
4 years
9 years
Estimated residual value
$0
$0
Estimated total income over the useful life
$9,600
$33,120
Determine the expected average rate of return for each proposal.
If required, round to one decimal place.
Testing Equipment
%
Diagnostic Software
%

Average Rate of Return
The following data are accumulated by Watershed Inc. in
evaluating two competing capital investment proposals:
Project A
Project Z
Amount of investment
$52,000
$52,000
Useful life
4 years
5 years
Estimated residual value
0
0
Estimated total income over the useful life
$7,800
$13,000
Determine the expected average rate of return for each project.
Round your answers to one decimal place.
Project A
%
Project Z
%

1.
Project 1 requires an original investment of $63,600. The
project will yield cash flows of $12,000 per year for five years.
Project 2 has a calculated net present value of $12,300 over a
three-year life. Project 1 could be sold at the end of three years
for a price of $53,000.
Use the Present Value of $1 at Compound
Interest and the Present Value of an Annuity of $1
at Compound Interest tables shown below.
Present Value of $1...

OldSchool Corp. is reviewing its method of evaluating capital
expenditure proposals using the accounting rate of return method. A
recent proposal involved a $200,000 investment in a machine that
had an estimated useful life of five years and an estimated salvage
value of $20,000. The cash flow from the new machine was expected
to increase net income before depreciation expense by $56,000 per
year. OldSchool’s current policy for approving a new investment is
that it have a rate of return...

#29
Redwood Corporation is considering two alternative investment
proposals with the following data:
Proposal X
Proposal Y
Investment
$ $830,000
$ $534,000
Useful life
7 years
7 years
Estimated annual net
cash inflows for
77
years
$ $120,000
$ $84,000
Residual value
$ $31,000
$
Depreciation method
Straight−line
Straight−line
Required rate of return
10%
7%
How long is the payback period for Proposal Y?
#31
Selected financial data for The Portland Porcelain Works Coffee
Mug Division is as follows:
Sales...

Welsh Industries is evaluating two alternative investment
opportunities. The controller of the company has prepared the
following analysis of the two investment proposals. Proposal A
Proposal B Required investment in equipment $ 400,000 $ 576,000
Estimated service life of equipment 5 years 6 years Estimated
salvage value $ 80,000 $ 0 Estimated annual cost savings (net cash
flow) 100,000 192,000 Depreciation on equipment (straight-line
basis) 64,000 96,000 Estimated increase in annual net income 36,000
57,600 Required: a. For each proposed...

net present value method The following data are accumulated by
Geddes Company in evaluating the purchase of $150,000 of equipment,
having a four-year useful life: Net Income Net Cash Flow Year 1
$45,500 $83,000 Year 2 20,500 58,000 Year 3 17,000 54,500 Year 4
3,500 41,000 Assuming that the desired rate of return is 20%,
determine the net present value for the proposal. If required,
round to the nearest dollar.

The following data are accumulated by Paxton Company in
evaluating the purchase of $199,000 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$43,000
$73,000
Year 2
26,000
56,000
Year 3
13,000
42,000
Year 4
(1,000)
28,000
Present Value of $1 at Compound
Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
5...

Net present value method
The following data are accumulated by Geddes Company in
evaluating the purchase of $160,000 of equipment, having a
four-year useful life:
Net Income Net Cash Flow
Year 1: $42,000 $82,000
Year 2: 22,500 62,500
Year 3: 10,000 50,000
Year 4: 6,000 46,000
This information has been collected in the Microsoft Excel
Online file. Open the spreadsheet, perform the required analysis,
and input your answers in the questions below.
Open spreadsheet
a) Assuming that the desired rate...

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