1. Determine the average rate of return for a project that is estimated to yield total...

1. Determine the average rate of return for a project that is estimated to yield total income of $421,200 over four years, has a cost of $720,900, and has a $89,100 residual value. Round to the nearest whole number.
____ %

2. A project has estimated annual net cash flows of $54,000. It is estimated to cost $307,800.

Determine the cash payback period. If required, round your answer to one decimal place.
____years

3. A project has estimated annual net cash flows of $6,250 for four years and is estimated to cost $42,500. Assume a minimum acceptable rate of return of 12%. Use the Present Value of an Annuity of $1 at Compound Interest table below.

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.353	2.991
6	4.917	4.355	4.111	3.785	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

Determine (a) the net present value of the project and (b) the present value index. If required, use the minus sign to indicate a negative net present value.

Net present value of the project (round to the nearest dollar)	$
Present value index (rounded to two decimal places)

Solutions

Expert Solution

Q1.
Average Income = 421200 / 4 =	105300
Average investment (720900+89100)/2 =	405000

Average rate of return:
Average Income		105300
Divide: Average investment	405000
Average rate of return:	26%


Q2.
Cost of Project		307800
Divide: Annual cashflows	54000
Payback period		5.7	years

Q3.
Annual cashflows			6250
Multiply: Annuity PVF at 12% for 4 years	3.037
Present value of Inflows		18981.25
Less: Investment			-42500
Net Present value			-23518.75

Present value index:
Present value of inflows		18981.25
Divide: Investment			42500
Present value index:			0.45

Net present value of Project		23519
Present value index			0.45

ekkarill92 answered 1 year ago

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