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 .870, .756, .658, and .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 .870, .756, .658, and .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 .870, .756, .658, and .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