1 | Net Present Value | = | $ 52,880 | ||
2 | Simple rate of return | = | 12.4% | ||
3 - a. | Yes | ||||
34 - b. | No | ||||
1 | |||||
Year | Value Flows | Present Factor @18% | Present Value | ||
Initial Cost | 0 | $ -44,50,000 | 1 | $ -44,50,000 | |
Cash Inflows ($890000 + $550000) | 1 - 5 | $ 14,40,000 | 3.127 | $ 45,02,880 | |
Net Present Value | $ 52,880 | ||||
2 | Computation of Simple rate of return: | ||||
Simple rate of return | = | Net Profit / Investment | |||
= | $550000 / $4450000 | ||||
= | 12.4% | ||||
3 - a. | Yes | ||||
As the Net Present value is positive it is beneficial for company. | |||||
3 - b. | No | ||||
ROI | = | 20% | |||
Simple rate of return | = | 12.4% | |||
As, ROI is more than Simple rate of return. It is not recommended to accept the Investment opportunity. | |||||
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Help Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely...
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