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 cash flow from the project are as follows.

year net income Net cash flow

1 90,000 210,000

2 80,000 200,000

3 40,000 160,000

4 30,000 150,000

240,000 720,000

Company's minimum desired rate of return for net present value analysis is 15 %. The present value of the $1 at compound intrest of 15% for 1,2,3,4 years is. 870.756.658 and. 572 determine the average rate of return on investment using straight line method and net present value.

Question

Business

Mark Li

1 January, 12:17

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 cash flow from the project are as follows.

year net income Net cash flow

1 90,000 210,000

2 80,000 200,000

3 40,000 160,000

4 30,000 150,000

240,000 720,000

Company's minimum desired rate of return for net present value analysis is 15 %. The present value of the $1 at compound intrest of 15% for 1,2,3,4 years is. 870.756.658 and. 572 determine the average rate of return on investment using straight line method and net present value.

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Nelson Russo · Answer 1

Average rate of Return = Average profit / Average investment

= 60,000 / 240,000

=0.25 * 100 = 25%

Net Present value = Present value of future cash floes - initial investment

= $524,980 - $480,000

= $44,980

Explanation:

profits = 240,000/4 = 60,000

average investment = 480,000/2=240,000

Present value = $524,980

year 1 = 210,000*0.870 = 182,700

year 2 = 200,000*0.756=151,200

year 3 = 160,000*0.658=105,280

year 4 = 150,000*0.572 = 85,800