Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:
Investments Year Income from Net cash operations flow
Proposal A: $425,000 1 $ 40,000 $125,000
2 40,000 125,000
3 40,000 125,000
4 15,000 100,000
5 (35,000) 50,000
------------- -------------
$100,000 $525,000
-------------- -------------
Proposal B: $610,000 1 $ 158,000 $280,000
2 158,000 280,000
3 78,000 200,000
4 28,000 150,000
5 (22,000) 100,000
----------------- -------------
$400,000 $1,010,000
--------------- ---------------
Proposal C: $275,000 1 $45,000 $ 100,000
2 45,000 100,000
3 45,000 100,000
4 45,000 100,000
5 35,000 90,000
----------- -------------
$215,000 $490,000
------------ -------------
Investment Year Income From Net Cash
operations Flow
Proposal D: $190,000 1 $22,000 $60,000
2 22,000 60,000
3 22,000 60,000
4 2,000 40,000
5 2,000 40,000
---------- -------------
$70,000 $260,000
The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
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 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to 1 decimal place.
Average rate of return
Proposal A:_______________%
Proposal B:_______________%
Proposal C:_______________%
Proposal D:_______________%
5.Compute the present value index for each of the proposals in (4). Round to 2 decimal places.
Select proposal to compute Present value index. __A or B___ __ C or D___
Present value index (rounded): ___________ ___________
Click here for the solution: Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Showing posts with label proposals. Show all posts
Showing posts with label proposals. Show all posts
Wednesday, November 11, 2015
Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:
Investments Year Income from Net cash operations flow
Proposal A: $425,000 1 $ 40,000 $125,000
2 40,000 125,000
3 40,000 125,000
4 15,000 100,000
5 (35,000) 50,000
------------- -------------
$100,000 $525,000
-------------- -------------
Proposal B: $610,000 1 $ 158,000 $280,000
2 158,000 280,000
3 78,000 200,000
4 28,000 150,000
5 (22,000) 100,000
----------------- -------------
$400,000 $1,010,000
--------------- ---------------
Proposal C: $275,000 1 $45,000 $ 100,000
2 45,000 100,000
3 45,000 100,000
4 45,000 100,000
5 35,000 90,000
----------- -------------
$215,000 $490,000
------------ -------------
Investment Year Income From Net Cash
operations Flow
Proposal D: $190,000 1 $22,000 $60,000
2 22,000 60,000
3 22,000 60,000
4 2,000 40,000
5 2,000 40,000
---------- -------------
$70,000 $260,000
The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
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 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to 1 decimal place.
Average rate of return
Proposal A:_______________%
Proposal B:_______________%
Proposal C:_______________%
Proposal D:_______________%
5.Compute the present value index for each of the proposals in (4). Round to 2 decimal places.
Select proposal to compute Present value index. __A or B___ __ C or D___
Present value index (rounded): ___________ ___________
Click here for the solution: Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Investments Year Income from Net cash operations flow
Proposal A: $425,000 1 $ 40,000 $125,000
2 40,000 125,000
3 40,000 125,000
4 15,000 100,000
5 (35,000) 50,000
------------- -------------
$100,000 $525,000
-------------- -------------
Proposal B: $610,000 1 $ 158,000 $280,000
2 158,000 280,000
3 78,000 200,000
4 28,000 150,000
5 (22,000) 100,000
----------------- -------------
$400,000 $1,010,000
--------------- ---------------
Proposal C: $275,000 1 $45,000 $ 100,000
2 45,000 100,000
3 45,000 100,000
4 45,000 100,000
5 35,000 90,000
----------- -------------
$215,000 $490,000
------------ -------------
Investment Year Income From Net Cash
operations Flow
Proposal D: $190,000 1 $22,000 $60,000
2 22,000 60,000
3 22,000 60,000
4 2,000 40,000
5 2,000 40,000
---------- -------------
$70,000 $260,000
The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
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 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to 1 decimal place.
Average rate of return
Proposal A:_______________%
Proposal B:_______________%
Proposal C:_______________%
Proposal D:_______________%
5.Compute the present value index for each of the proposals in (4). Round to 2 decimal places.
Select proposal to compute Present value index. __A or B___ __ C or D___
Present value index (rounded): ___________ ___________
Click here for the solution: Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Sunday, October 4, 2015
The following data are accumulated by Eco-Labs, Inc. in evaluating two competing capital investment proposals
EX 10-1 The following data are accumulated by Eco-Labs, Inc. in evaluating two competing capital investment proposals:
Testing Equipment Vehicle
Amount of investment $80,000 $28,000
Useful life 6 years 8 years
Estimated residual value 0 0
Estimated total income over the useful life $13,200 $14,000
Determine the expected average rate of return for each proposal. Round to one decimal place.
Click here for the solution: The following data are accumulated by Eco-Labs, Inc. in evaluating two competing capital investment proposals
Testing Equipment Vehicle
Amount of investment $80,000 $28,000
Useful life 6 years 8 years
Estimated residual value 0 0
Estimated total income over the useful life $13,200 $14,000
Determine the expected average rate of return for each proposal. Round to one decimal place.
Click here for the solution: The following data are accumulated by Eco-Labs, Inc. in evaluating two competing capital investment proposals
Monday, July 6, 2015
Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals
Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:
The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Required:
1. Compute the cash payback period for each of the four proposals.
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. If required, round your answers to one decimal place.
3. Using the following format, summarize the results of your computations in parts (1) and (2) by placing the calculated amounts in the first two columns and indicating which proposals should be accepted for further analysis and which should be rejected.
4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of $1 in table above. Round to the nearest dollar.
5. Compute the present value index for each of the proposals in part (4). If required, round your answers to two decimal places.
6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4).
7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5).
8. Based upon the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
Click here for the solution: Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals
The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Required:
1. Compute the cash payback period for each of the four proposals.
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. If required, round your answers to one decimal place.
3. Using the following format, summarize the results of your computations in parts (1) and (2) by placing the calculated amounts in the first two columns and indicating which proposals should be accepted for further analysis and which should be rejected.
4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of $1 in table above. Round to the nearest dollar.
5. Compute the present value index for each of the proposals in part (4). If required, round your answers to two decimal places.
6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4).
7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5).
8. Based upon the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
Click here for the solution: Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals
Monday, June 29, 2015
An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget
An investment center in Shellforth Corporation was asked to identify
three proposals for its capital budget. Details of those proposals are:
Capital Budget Proposals
A B C
Capital Required $80,000 $50,000 $150,000
Annual Operating Return 24,000 16,000 15,000
Shellforth uses residual income to evaluate all capital budgeting projects. Its minimum required return is 12 percent.
a. Assume you are the investment center manager. Which project do you prefer? Why?
b. Assume your investment center’s current ROI is 18 percent and that
the president of Shellforth is thinking about using ROI for the
investment center’s evaluation. Would your preferences for the projects
listed above change? Why?
Click here for the solution: An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget
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