Sommers Company is evaluating a project requiring a capital expenditure of $400,000.The project has an estimated life of 6 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 12%.The present value of $1 at compound interest of 12% is shown in the table below:

Determine (a)the average rate of return on investment,giving effect to depreciation on the investment,and (b)the net present value.

Question

Sommers Company is evaluating a project requiring a capital expenditure of $400,000.The project has an estimated life of 6 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 12%.The present value of $1 at compound interest of 12% is shown in the table below:
  
Determine (a)the average rate of return on investment,giving effect to depreciation on the investment,and (b)the net present value.

Quizplus · Accepted Answer

The Answer of Sommers Company is evaluating a project requiring a capital expenditure of $400,000.The project has an estimated life of 6 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 12%.The present value of $1 at compound interest of 12% is shown in the table below:
  
Determine (a)the average rate of return on investment,giving effect to depreciation on the investment,and (b)the net present value.

Sommers Company Is Evaluating a Project Requiring a Capital Expenditure