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Information on four investment proposals is given below: Investment required Present value of cash inflows $ (130,000) 185,60
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $50,000. The machine wou
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Answer #1
Question-1
1
Project Profitability Index = Net Present value/Investment required
Investment Proposal Project Profitability Index
A 0.43 =55600/130000
B 0.38 =53800/140000
C 0.52 =78600/150000
D 0.33 =421100/1260000
2
C A B D
Question-2
Operating cost of old machine 13000
Less: Less operating cost of new machine 6000
Less: Annual Depreciation 5000 =50000/10
Annual incremental net operating income 2000
Cost of the new machine 50000
Less: Salvage value of old machine 20000
Initial investment 30000
Simple rate of return
Choose Numerator: / Choose Denominator: = Simple rate of return
Annual incremental net operating income / Initial investment = Simple rate of return
2000 / 30000 = 6.7%
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