BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of 4 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 is 12%. The factors for the present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years are 0.893, 0.797, 0.712, and 0.636, respectively.Determine (a) the average rate of return on investment and (b) the net present value.

Question

BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of 4 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 is 12%. The factors for the present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years are 0.893, 0.797, 0.712, and 0.636, respectively.Determine (a) the average rate of return on investment and (b) the net present value.

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The Answer of BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of 4 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 is 12%. The factors for the present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years are 0.893, 0.797, 0.712, and 0.636, respectively.Determine (a) the average rate of return on investment and (b) the net present value.

BAM Co Is Evaluating a Project Requiring a Capital Expenditure of of $806,250