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PR26-1 Cross

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part 1 (a and b) only

PR26-1 The capital investment committee of Cross Continent Trucking Inc. is considering two
investment projects. The estimated income from operations and net cash flows from
each investment are as follows:


Year Income from operations Net cash flow Income from operationgs Net cash flow
1  42,000  138,000  89,000  185,000
2  42,000  138,000  69,000  165,000
3  42,000  138,000  34,000  130,000
4  42,000  138,000  14,000  110,000
5  42,000  138,000  4,000  100,000
 210,000  690,000  210,000  690,000

Each project requires an investment of $480,000. 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.

Instructions
1. Compute the following:
a. The average rate of return for each investment. Round to one decimal place.
b. The net present value for each investment. Use the present value of $1 table
appearing in this chapter.

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