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In: Accounting

Calculate the following from the chart below. 1. Net present value 2. Accounting rate of return...

Calculate the following from the chart below.

1. Net present value

2. Accounting rate of return

3. Internal rate of return (using average annual cash flows)

4. Present value index

5. Payback

Use 8% as the hurdle rate, and assume a salvage value of $50,000.

Alternative A Alternative B Alternative C
Cost $4,200.00 $4,400.00 $4,600.00
Setup Costs $50,000.00 $22,000.00 $30,000.00
Training Costs $22,000.00 $25,000.00 $30,000.00
Annual Maintenance Costs $32,000.00 $10,000.00 $15,000.00
Anticipated annual savings $535,000.00 $475,000.00 $495,000.00
Annual Labor savings $20,000.00 $0.00 $40,000.00
Expected useful life in years $9.00 $9.00 $8.00
Overhaul costs in year 4 $10,000.00 $18,000.00 $30,000.00
Annual Operating costs $22,000.00 $25,000.00 $27,000.00

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A B C
Intial Investment:
Cost -4200 -4400 -4600
Set Up Cost -50000 -22000 -30000
Training Cost -22000 -25000 -30000
Initial Investment at period 0 -76200 -51400 -64600
Annual Net Cash Flow:
Period A B C
Annual Maintenance Cost Full Life -32000 -10000 -15000
Annual Operating Cost Full Life -22000 -25000 -27000
Anticipated Labor Saving Full Life 20000 0 40000
Anticipated Annual Saving Full Life 535000 475000 495000
Annual Net Cash inflow 501000 440000 493000
1. Net Present Value
A B C
Actual Cash Flow PV Factor Present Value Actual Cash Flow PV Factor Present Value Actual Cash Flow PV Factor Present Value
Initial Investment -76200 1 -76200 -51400 1 -51400 -64600 1 -64600
Annual Net Cash Inflow Full Life 501000 6.2469 3129697 440000 6.2469 2748636 493000 5.7466 2833074
Overhaul Cost Period 4 -10000 0.735 -7350 -18000 0.735 -13230 -30000 0.735 -22050
Salvage Value 9 and 8 50000 0.5002 25010 50000 0.5002 25010 50000 0.5402 27010
Net Present Value 3071157 2709016 2773434
2. Accounting Rate of Return Net Profit/Investment
Net Profit:
Anticipated Labor Saving Full Life 20000 0 40000
Anticipated Annual Saving Full Life 535000 475000 495000
Annual Maintenance Cost Full Life -32000 -10000 -15000
Annual Operating Cost Full Life -22000 -25000 -27000
Overhaul Cost -10000 -18000 -30000
Net Profit A 491000 422000 463000
Investment B 76200 51400 64600
Accounting Rate of Return A/B 644% 821% 717%
3. Internal Rate of Return
A B C
-76200 -51400 -64600
501000 440000 493000
-10000 -18000 -30000
50000 50000 50000
=IRR(C47:C50) =IRR(D47:D50) =IRR(E47:E50)
557% 753% 658%
4. Present Value Index (NPV+Initial Investment)/Intial Investment
A B C
Intial Investment A 76200 51400 64600
NPV 3071157 2709016 2773434
Total B 3147357 2760416 2838034
Present Value INDES B/A                                    41.30                         53.70                   43.93
5. Payback Period
A B C
Intial Investment A 76200 51400 64600
Annual Net Cash Flow (with overhaul cost) B 491000 422000 463000
Payback Period A/B 0.16 0.12 0.14
Year Year Year

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