Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. 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 for net present value analysis is 15%. The present value of $1 at compound interest of 15% for 1, 2, 3, and 4 years 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 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 for net present value analysis is 15%. The present value of $1 at compound interest of 15% for 1, 2, 3, and 4 years 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 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 for net present value analysis is 15%. The present value of $1 at compound interest of 15% for 1, 2, 3, and 4 years 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