uestion #1 Using payback to make capital investment decisions;Robinson Hardware is adding a new product line that will require an investment of $1,454,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $300,000 the first year, $270,000 the second year, and $260,000 each year thereafter for eight years. Compute the payback period. 5.4yrs;Question #2 Using ARR to make capital investment decisions;Refer to the Robinson Hardware information in Question #1. Assume the project has no residual value. Compute the ARR for the investment. Round to two places. 16.45%;Question #3 Using the time value of money;Janice wants to take the next five years off work to travel around the world. She estimates her annual cash needs at $28,000 (if she needs more, she will work odd jobs). Janice believes she can invest her savings at 8% until she depletes her funds. 2. 124,656;Requirements;1. How much money does Janice need now to fund her travels?;2. After speaking with a number of banks, Janice learns she will only be able to invest her funds at 4%. How much does she need now to fund her travels?;Question #4 Using NPV and profitability index to make capital investment decisions;Use the NPV method to determine whether Kyler Products should invest in the following projects;Project A: Costs $260,000 and offers seven annual net cash inflows of $57,000. Kyler Products requires an annual return of 16% on investments of this nature.;Project B: Costs $375,000 and offers 10 annual net cash inflows of $75,000.;Kyler Products demands an annual return of 14% on investments of this nature. 1. Project B $16,200 NPV;Requirements;1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places.;2. What is the maximum acceptable price to pay for each project?;3. What is the profitability index of each project? Round to two decimal places.;Question #5 Using IRR to make capital investment decisions;Refer to the data regarding Kyler Products in question #4. Compute the IRR of each project and use this information to identify the better investment.;Project A 12% ? 14% IRR;Question #6 Using payback, ARR, NPV, and IRR to make capital investment decisions;Davis Consulting is considering purchasing two different types of;servers. Server A will generate net cash inflows of $25,000 per year and have a zero residual value. Server A?s estimated useful life is three years and it costs $40,000. Server B will generate net cash inflows of $25,000 in year 1, $11,000 in year 2, and $4,000 in year 3. Server B has a $4,000 residual value and an estimated life of three years. Server B also costs $40,000. Davis?s required rate of return is 14%.;Requirements;1. Calculate payback, accounting rate of return, net present value, and internal rate of return for both server investments. Use Microsoft Excel to calculate NPV and IRR.;2. Assuming capital rationing applies, which server should Davis invest in?
Paper#31850 | Written in 18-Jul-2015Price : $21