Hiroshima Inc. is evaluating 3 investment alternatives. Each alternative requires a cash outflow of $176,000 and is to be depreciated on a straight line basis ($6,000 salvage value). Ignore income taxes. Cash flows for the various investments are summarized below:
The company has a required rate of return of 11.2%
Required:
a. Evaluate and rank each alternative based on NPV
c. Evaluate and rank each alternative based on Accrual Accounting Return using average annualcash flows.
d. Evaluate each project based on payback period.
e. Which project do you recommend and why? Address the issue of risk in your response.

Question

Hiroshima Inc. is evaluating 3 investment alternatives. Each alternative requires a cash outflow of $176,000 and is to be depreciated on a straight line basis ($6,000 salvage value). Ignore income taxes. Cash flows for the various investments are summarized below:
  The company has a required rate of return of 11.2%
Required:
a. Evaluate and rank each alternative based on NPV
  c. Evaluate and rank each alternative based on Accrual Accounting Return using average annualcash flows.
d. Evaluate each project based on payback period.
e. Which project do you recommend and why? Address the issue of risk in your response.

Quizplus · Accepted Answer

The Answer of Hiroshima Inc. is evaluating 3 investment alternatives. Each alternative requires a cash outflow of $176,000 and is to be depreciated on a straight line basis ($6,000 salvage value). Ignore income taxes. Cash flows for the various investments are summarized below:
  The company has a required rate of return of 11.2%
Required:
a. Evaluate and rank each alternative based on NPV
  c. Evaluate and rank each alternative based on Accrual Accounting Return using average annualcash flows.
d. Evaluate each project based on payback period.
e. Which project do you recommend and why? Address the issue of risk in your response.