Maurice Tutor

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Category > Accounting Posted 11 Aug 2017 My Price 12.00

Allister Company

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.)

 

Project 1: Retooling Manufacturing Facility
 

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.

 
Project 2: Purchase Patent for New Product
 

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.

 
Project 3: Purchase a New Fleet of Delivery Trucks
 

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.

 

Requirement 1:

Determine each project's accounting rate of return. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

 

  Accounting rate
of return
Project 1   %
Project 2   %
Project 3   %

 

Requirement 2:

Determine each project's payback period. (Round your answers to 2 decimal places.)

 

  Payback period
Project 1   years
Project 2   years
Project 3   years

 

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.)

 

  Net present
value
Project 1 $  
Project 2 $  
Project 3 $  

 

Requirement 4:

Determine the profitability index of each project. (Round your intermediate calculations and final answers to 4 decimal places.)

 

  Profitability index
Project 1  
Project 2  
Project 3  


rev: 07-18-2011 ,11_09_2012

Answers

(5)
Status NEW Posted 11 Aug 2017 05:08 PM My Price 12.00

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