Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. 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: The company's minimum desired rate of return for net present value analysis is 15%. The present value of $1 at compound interest of 15% for Years 1 through 4 is 0.870, 0.756, 0.658, and 0.572, respectively.Determine
(a) the average rate of return on investment, using straight-line depreciation, and
(b) the net present value.

Question

Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. 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:​  The company's minimum desired rate of return for net present value analysis is 15%. The present value of $1 at compound interest of 15% for Years 1 through 4 is 0.870, 0.756, 0.658, and 0.572, respectively.Determine 
(a) the average rate of return on investment, using straight-line depreciation, and 
(b) the net present value.

Quizplus · Accepted Answer

The Answer of Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. 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:​  The company's minimum desired rate of return for net present value analysis is 15%. The present value of $1 at compound interest of 15% for Years 1 through 4 is 0.870, 0.756, 0.658, and 0.572, respectively.Determine 
(a) the average rate of return on investment, using straight-line depreciation, and 
(b) the net present value.

Vanessa Company Is Evaluating a Project Requiring a Capital Expenditure