1.)Orkin Company is considering two different, mutually exclusive capital expend
ID: 2428202 • Letter: 1
Question
1.)Orkin Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $489,272, has an expected useful life of 13 years, a salvage value of zero, and is expected to increase net annual cash flows by $68,600. Project B will cost $337,425, has an expected useful life of 13 years, a salvage value of zero, and is expected to increase net annual cash flows by $49,200. A discount rate of 8% is appropriate for both projects. Compute the net present value and profitability index of each project. Which project should be accepted? (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round computations and final answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. Round computations for Discount Factor to 5 decimal places. )Net present value - Project A $ _________?
Profitability index - Project A _________?
Net present value - Project B $ ________?
Profitability index - Project B _________?
Which project should be accepted A or B ?
2.)Rogler Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $240,639, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $43,400 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $249,774, will have a useful life of 11 years, and will produce net annual cash flows of $36,475 per year. Evaluate the success of the project. Assume a discount rate of 10%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers to 0 decimal places, e.g. 125. Round computations for Discount Factor to 5 decimal places.)
Original net present value $_______?
Revised net present value $ _______?
The project (is or is not) a success.?
3.)Lovitz Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $173,000, has an estimated useful life of 7 years, a salvage value of zero, and will increase net annual cash flows by $34,373. What is its approximate internal rate of return? (Use the table and round answer to 0 decimal place, e.g. 15.)
Internal rate of return %________?
Explanation / Answer
3) Initial outflow = $173,000 Cash inflow = $34,373 (7 years) = 240,611 IRR = (240,611 - 173,000) / (173,000) = 39.082%
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