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PAYBACK ACCOUNTING RATE OF RETURN PRESENT VALUE NET PRESENT VALUE INTERNAL RATE OF RETURN All four parts are independent of all other parts Assume that all cash flows are aftertax cash flows

PAYBACK, ACCOUNTING RATE OF RETURN, PRESENT VALUE, NET PRESENT VALUE, INTERNAL RATE OF RETURN All four parts are independent of all other parts. Assume that all cash flows are after-tax cash flows.

 

a. Randy Willis is considering investing in one of the following two projects. Either project will require an investment of $10,000. The expected cash flows for the two projects follow. Assume that each project is depreciable.

b. Wilma Golding is retiring and has the option to take her retirement as a lump sum of $225,000 or to receive $24,000 per year for 20 years. Wilma’s required rate of return is 8 percent.

c. David Booth is interested in investing in some tools and equipment so that he can do independent drywalling. The cost of the tools and equipment is $20,000. He estimates that the return from owning his own equipment will be $6,000 per year. The tools and equipment will last six years.

d. Patsy Folson is evaluating what appears to be an attractive opportunity. She is currently the owner of a small manufacturing company and has the opportunity to acquire another small company’s equipment that would provide production of a part currently purchased externally. She estimates that the savings from internal production will be  $25,000 per year. She estimates that the equipment will last 10 years. The owner is asking$130,400 for the equipment. Her company’s cost of capital is 10 percent.

Apr 01 2020 Read more Less More

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