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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Allister Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. (Use Table 2 & Table 4.)
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| Project 1: Retooling Manufacturing Facility |
| Â |
|
This project would require an initial investment of $4.29 million. It would generate $743,067 in additional cash flow each year. The new machinery has a useful life of 7 years and a salvage value of $560,000. |
| Â |
| Project 2: Purchase Patent for New Product |
| Â |
|
The patent would cost $5,180,000, which would be fully amortized over 4 years. Production of this product would generate $1,776,740 additional annual net income for Allister. |
| Â |
| Project 3: Purchase a New Fleet of Delivery Trucks |
| Â |
|
Allister could purchase 25 new delivery trucks at a cost of $95,400 each. The fleet would have a useful life of 9 years, and each truck would have a salvage value of $4,400. Purchasing the fleet would allow Allister to expand its customer territory resulting in $610,560 of additional net income per year. |
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| Requirement 1: |
|
Determine each project's accounting rate of return. (Round your answers to 2 decimal places. Omit the "%" sign in your response.) |
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| Â | Accounting rate of return |
|
| Project 1 | Â | % |
| Project 2 | Â | % |
| Project 3 | Â | % |
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| Requirement 2: |
|
Determine each project's payback period. (Round your answers to 2 decimal places.) |
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| Â | Payback period | |
| Project 1 | Â | years |
| Project 2 | Â | years |
| Project 3 | Â | years |
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| Requirement 3: |
|
Using a discount rate of 11 percent, calculate the net present value of each project. (Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) |
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| Â | Net present value |
|
| Project 1 | $ | Â |
| Project 2 | $ | Â |
| Project 3 | $ | Â |
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| Requirement 4: |
|
Determine the profitability index of each project. (Round your intermediate calculations and final answers to 4 decimal places.) |
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| Â | Profitability index |
| Project 1 | Â |
| Project 2 | Â |
| Project 3 | Â |
rev: 07-18-2011 ,11_09_2012
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