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De Luca Company is considering two possible investments, each of which requires




Question;11-47;De Luca Company is considering two possible;investments, each of which requires an initial investment of $12,000.;Investment A will provide a cash flow of $3,000 at the end of each year for 4;years. Investment B will provide a cash flow of $2,000 at the end of each year;for 10 years.;1.;Determine the payback period;for each investment. Which investment is most desirable using the payback;method?;2.;Compute the NPV of each;investment using a desired rate of return 5%. Which investment is most;desirable using the NPV method?;3.;Explain why the payback method;does not lead to an optimal decision for the De Luca Company.;11-48;The Jackson City Park department is;considering the purchase of a new, more efficient pool heater for its Moorcroft;Swimming Pool at a cost of $15,000. It should save $3,000 in cash operating;costs per year. Its estimated useful life is 8 years, and it will have zero;disposal value. Ignore taxes.;1.;What is the payback time?;2.;Compute the NPV if the minimum;rate of return desired is 18%. Should the department buy the heater? Why?;3.;Using the ARR model, compute;the rate of return on the initial investment.


Paper#44497 | Written in 18-Jul-2015

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