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##### ACC - Problem 11-47 and 11-48

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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#50815 | Written in 18-Jul-2015

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