Question Content Area Average rate of return method, net present value method, and analysis for...
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Accounting
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Average rate of return method, net present value method, and analysis for a service company
The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows:
Year
Robotic AssemblerOperating Income
Robotic AssemblerNet Cash Flow
WarehouseOperating Income
WarehouseNet Cash Flow
1
$57,200
$181,000
$120,000
$290,000
2
57,200
181,000
92,000
244,000
3
57,200
181,000
46,000
172,000
4
57,200
181,000
20,000
118,000
5
57,200
181,000
8,000
81,000
Total
$286,000
$905,000
$286,000
$905,000
Each project requires an investment of $520,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis.
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
5
0.747
0.621
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
7
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0.404
0.327
0.233
9
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Required:
1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.
Investment Committee
Average Rate of Return
Robotic Assembler
%
Warehouse
%
1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value.
Line Item Description
Robotic Assembler
Warehouse
Present value of net cash flow
$fill in the blank 3
$fill in the blank 4
Amount to be invested
fill in the blank 5
fill in the blank 6
Net present value
$fill in the blank 7
$fill in the blank 8
Answer & Explanation
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