9
Perkins Corporation is considering several investment proposals, as shown below:
Investment Proposal | ||||||||||||
A | B | C | D | |||||||||
Investment required | $ | 96,000 | $ | 120,000 | $ | 72,000 | $ | 90,000 | ||||
Present value of future net cash flows | $ | 115,200 | $ | 180,000 | $ | 100,800 | $ | 168,000 | ||||
If the project profitability index is used, the ranking of the projects from most to least profitable would be:
16
oetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.):
Investment required in equipment | $ | 40,000 | |
Annual cash inflows | $ | 10,000 | |
Salvage value of equipment | $ | 0 | |
Life of the investment | 15 | years | |
Required rate of return | 10 | % | |
The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.
The internal rate of return of the investment is closest to:
9)
D,B,C,A
Profitability index = present value of future net cash flows / investment required
A = 115,200/96,000
= 1.2
B = 180,000/120,000
= 1.5
C = 100,800/72,000
= 1.4
D = 168,000/90000
= 1.87
16)
Annual cash inflows | 10,000 | |
Less: Depreciation | 2,667 | =40000/15 |
Annual net income | 7,333 | |
Annual net income | 7,333 | |
Divide by Investment | 40,000 | |
Simple rate of return | 18.3% |
9 Perkins Corporation is considering several investment proposals, as shown below: Investment Proposal A B C...
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