Question

#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	$$2,300,000
Operating income	$$414,000
Total assets	$$718,750
Current liabilities	$ $190,000
Target rate of return	11​%
Weighted average cost of capital	5​%

What is The Portland Porcelain Works Coffee Mug Division return on​ investment?

Answer 1

29.

Proposal Y

Investment = $534,000

Annual cash inflow = $84,000

Payback period = Investment/ Annual cash inflow

= 534,000/84,000

= 6.36 years

the payback period for Proposal​ Y = 6.36 years

31.

Operating income = $414,000

Total assets = $718,750

Return on investment = Operating income / Total assets

= 414,000/718,750

= 57.6%

The Portland Porcelain Works Coffee Mug Division return on​ investment = 57.6%

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