Net operating income | 748000 | |||||
Add: Depreciation | 1102000 | |||||
Net cash flows | 1850000 | |||||
1 | ||||||
Now | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
Investment cost | -5510000 | |||||
Net cash flows | 1850000 | 1850000 | 1850000 | 1850000 | 1850000 | |
Total cash flows | -5510000 | 1850000 | 1850000 | 1850000 | 1850000 | 1850000 |
PV factor @ 19% | 1 | 0.840 | 0.706 | 0.593 | 0.499 | 0.419 |
Present value of cash flows | -5510000 | 1554000 | 1306100 | 1097050 | 923150 | 775150 |
Net present value | 145450 | |||||
2 | ||||||
PV factor internal rate of return=5510000/1850000 = 2.978 | ||||||
The PV factor 2.978 for 5 years is closest to 20% | ||||||
Internal rate of return = 20% | ||||||
3 | ||||||
Simple rate of return = Net operating income/Investment cost | ||||||
Simple rate of return = 748000/5510000= 13.6% | ||||||
4a | ||||||
Yes, the company would want Casey to pursue this investment as Net Present value is positive | ||||||
4b | ||||||
No, Casey would not be inclined to pursue this investment as as his ROI will decrease |
Check my work Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises...
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 23 % each of the last three years. Casey is considering a capital budgeting project that would require a $5,510,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 19%. The project would provide net operating income each year for five years as...
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 23% each of the last three years. Casey is considering a capital budgeting project that would require a $5,510,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company’s discount rate is 19%. The project would provide net operating income each year for five years as follows:...
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 24% each of the last three years. Casey is considering a capital budgeting project that would require a $4,300,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 20%. The project would provide net operating income each year for five years as follows:...
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 21% each of the last three years. Casey is considering a capital budgeting project that would require a $3,700,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 17%. The project would provide net operating income each year for five years as follows:...
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 20% each of the last three years. Casey is considering a capital budgeting project that would require a $3,600,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 16%. The project would provide net operating income each year for five years as follows:...
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determinded by his division's return on investment (ROI), which has been above 22% each of the last three years. We were unable to transcribe this imageCasey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 22% each of the last three years. Casey is considering a capital budgeting...
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on Investment (ROI), which has been above 23% each of the last three years. Casey is considering a capital budgeting project that would require a $5.800.000 Investment In equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 19%. The project would provide net operating Income each year for five years as follows:...
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 20% each of the last three years. Casey is considering a capital budgeting project that would require a $3,600,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 16%. The project would provide net operating income each year for five years as follows:...
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 23% each of the last three years. Casey is considering a capital budgeting project that would require a $5,620,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company’s discount rate is 19%. The project would provide net operating income each year for five years as follows:...
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 24% each of the last three years. Casey is considering a capital budgeting project that would require a $5,850,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company’s discount rate is 20%. The project would provide net operating income each year for five years as follows:...