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June Co. is evaluating a project requiring a capital expenditure of $620,000. The project has an estimated life of

four years and no salvage value. The estimated net income and net cash flow from the project are as follows:


Year Net Income Net Cash Flow

1 $45,000 $200,000

2 85,000 240,000

3 5,000 160,000

4 15,000 170,000

$150,000 $770,000

The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively.

a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answers to two decimal places.

 %

b. Determine the net present value.

$


Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows:


Year Net Income Net Cash Flow

1 $60,000 $120,000

2 50,000 110,000

3 45,000 105,000

4 30,000 90,000

5 20,000 80,000

$205,000 $505,000

The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below:

Year Present Value of $1 at 12%

1 0.893

2 0.797

3 0.712

4 0.636

5 0.567

a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places.

 %

b. Determine the net present value.

Top Answer

Q.1 Accounting Rate of Return 6.05% Net... View the full answer

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Year Net Income Net Cash Flow Present Value Present Value Cash Flow 1 45000 200000 0.893 178600
2 85000 240000 0.797 191280
3 5000 160000 0.712 113920
4 15000 170000 0.636 108120 Average Annual...

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