BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four 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 present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712, and .636, respectively.
Determine: (a) the average rate of return on investment, including the effect of depreciation on the 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 four 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 present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712, and .636, respectively.
Determine: (a) the average rate of return on investment, including the effect of depreciation on the investment, and (b) the net present value.

Quizplus · Accepted Answer

The Answer of BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four 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 present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712, and .636, respectively.
Determine: (a) the average rate of return on investment, including the effect of depreciation on the investment, and (b) the net present value.

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