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In: Accounting
Welsh Industries is evaluating two alternative investment opportunities. The controller of the company has prepared the...
Welsh Industries is evaluating two alternative investment opportunities. The controller of the company has prepared the following analysis of the two investment proposals.
| Proposal A | Proposal B | |||||
| Required investment in equipment | $ | 400,000 | $ | 576,000 | ||
| Estimated service life of equipment | 5 years | 6 years | ||||
| Estimated salvage value | $ | 80,000 | $ | 0 | ||
| Estimated annual cost savings (net cash flow) | 100,000 | 153,600 | ||||
| Depreciation on equipment (straight-line basis) | 64,000 | 96,000 | ||||
| Estimated increase in annual net income | 36,000 | 57,600 | ||||
Required:
a. For each proposed investment, compute the
following. Assume discounted at an annual rate of 10 percent. Use
Exhibits 26-3 and26-4 where necessary.
(1) Payback period
(2) Return on average investment
(3) Net present value
b. Based on your computations in part a, which proposal do you consider to be the better investment?
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Welsh Industries is evaluating two alternative investment opportunities. The controller of the company has prepared the...
Welsh Industries is evaluating two alternative investment
opportunities. The controller of the company has prepared the
following analysis of the two investment proposals.
Proposal A
Proposal B
Required investment in
equipment
$
400,000
$
576,000
Estimated service life of
equipment
5 years
6 years
Estimated salvage value
$
80,000
$
0
Estimated annual cost savings
(net cash flow)
100,000
192,000
Depreciation on equipment
(straight-line basis)
64,000
96,000
Estimated increase in annual net
income
36,000
57,600
Required:
a. For each...
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Option 1
Option 2
Equipment purchase and installation
$70,200
$82,120
Annual cash flow
$28,600
$31,070
Equipment overhaul in year 3
$4,810
-
Equipment overhaul in year 5
-
$6,250
Calculate the net present value of the two opportunities.
(Round present value factor calculations to 4 decimal
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Bill Zimmerman is evaluating two new business opportunities. Each of the opportunities shown below has a...
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Each of the opportunities shown below has a ten-year life. Bill
uses a 12% discount rate.
Option 1
Option 2
Equipment purchase and installation
$70,200
$82,120
Annual cash flow
$28,600
$31,070
Equipment overhaul in year 3
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Equipment overhaul in year 5
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Click here to view the factor table.
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Umbrella Company
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25%
0%
Rainy
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0%
25%
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