Hot Air Highlights (HAH) is considering the purchase of two new hot air balloons so that it can expand its desert sunset tours. Various information about the proposed investment follows: (Use Table 2 &Table 4.)
| Initial investment (for two hot air balloons) | $ | 361,000 | |
| Useful life | 8 | years | |
| Salvage value | $ | 49,000 | |
| Annual net income generated | $ | 33,212 | |
| HAH’s cost of capital | 14 | % | |
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| Required: |
| Help HAH evaluate this project by calculating each of the following: |
| (a) |
Accounting rate of return. (Round your answer to 2 decimal places. Omit the “%” sign in your response.) |
| Accounting rate of return | % |
| (b) | Payback period. (Round your answer to 2 decimal places.) |
| Payback period | years |
| (c) |
Net present value (NPV). (Negative amount should be indicated by a minus sign. Round your intermediate calculations to 4 decimal places and final answer to the nearest whole dollar amount. Omit the “$” sign in your response.) |
| Net present value | $ |
| (d) |
Recalculate the NPV assuming HAH’s cost of capital is 20 percent. (Negative amount should be indicated by a minus sign. Round your intermediate calculations to 4 decimal places and final answer to the nearest whole dollar amount. Omit the “$” sign in your response.) |
| Net present value | $ |
| Lancer Corp. has the following information available about a potential capital investment: |
| Initial investment | $ | 1,309,200 | |
| Annual net income | $ | 216,000 | |
| Expected life | 8 | years | |
| Salvage value | 352,000 | ||
| Lancer’s cost of capital | 10 | % | |
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9. value:
10.00 points
| Requirement 1: |
| Calculate the project’s net present value. (Round your intermediate calculations to 4 decimal places and round your final answer to the nearest whole dollar amount. Omit the “$” sign in your response.) |
| Net present value | $ |
check my workeBook Links (2)references
| Worksheet | Difficulty: Medium |
10. value:
10.00 points
| Requirement 3: |
| Calculate the net present value using a 17 percent discount rate. (Negative amount should be indicated by a minus sign. Round your intermediate calculations to 4 decimal places and final answer to the nearest whole dollar amount. Omit the “$” sign in your response.) |
| Net present value |
$ |
Midway Printing Co. is considering the purchase of new electronic printing equipment. It would allow Midway to increase its net income by $63,030 per year. Other information about this proposed project follows:
| Initial investment | $ | 330,000 | |
| Useful life | 7 | years | |
| Salvage value | $ | 92,000 | |
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11. value:
10.00 points
| Requirement 1: |
| Calculate the accounting rate of return for Midway. (Round your answer to 2 decimal places. Omit the “%” sign in your response.) |
| Accounting rate of return | % |
| Worksheet | Difficulty: Easy |
12. value:
10.00 points
| Requirement 2: |
| Calculate the payback period for Midway. (Round your answer to 2 decimal places.) |
| Payback period |
years |
value:
10.00 points
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Dayton Corp has $2.00 million to invest in new projects. The company’s managers have presented a number of possible options that the board must prioritize. Information about the projects follows: |
| Project A | Project B | Project C | Project D | |||||
| Initial investment | $ | 560,000 | $ | 240,000 | $ | 800,000 | $ | 955,000 |
| Present value of future cash flows |
775,000 | 420,000 | 1,210,000 | 1,570,000 | ||||
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| Requirement 1: |
| Is Dayton able to invest in all of these projects simultaneously? |
| (Click to select)NoYes |
| Requirement 2: | |
| (a) |
Calculate the profitability index for each project. (Round your answers to 4 decimal places.) |
| Profitability Index | |
| Project A | |
| Project B | |
| Project C | |
| Project D | |
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| (b) |
In order of preference, rank the four projects in terms of profitability index for Dayton. |
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Project |
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First preference |
(Click to select)BDCA |
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Second preference |
(Click to select)CBDA |
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Third preference |
(Click to select)CADB |
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Fourth preference |
(Click to select)ADCB |