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Problem 3-Capital Investment Russell Company is evaluating a project which will require an investment of $525,000. The project has an estimated life of 4 years and no salvage value. It is also expected to have the following net income and net cash flow Year Net Income Net Cash Flow $ 85,000 S 150,000 2 3. 4. 60,000 50,000 200,000 160,000 90,000 Russell Companys minimum desired rte of return is 12%. The present value factor of S1 at compound interest of 12% are: Year PV Factor 8929 .7972 4 6355 Determine a. The Average Rate of Return b. Cash Payback c. Net Present Value
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Pa Ne Present vabe (vpv) Pv Present Vau F Future Pasypment Cco-lou PeriodS in Y ear Cashflow Pv actor 0,8129 oIf 72 0门118 0.6355 a inflouS 1)s3,93S 1,50,000 200,000 1/60/000 연0,000 2 59,440 13, 886 57,195 6 458 present valued 6 CaykflowS Nev uneven Cash plous = 4,64,458-5,25,000Solo tion Rarta Average Rate of Return - Average annoal poit Average Investmen Avemge annual fnop Total Patofib ove Tnvesl ment Period Number of yeak3 2,40,000 Average tavest m ent -5, 25,000- p3 250 3l, 250 45.7 Alter apyng the formola t abive Value) Average Rate cReturo 45. 71calculation of payback period,NPV,&ARR

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