Average accounting return, and profitability index

Reference no: EM13154396

Margarite's Enterprises is considering a new project. The project will require $325,000
for new fixed assets, $160,000 for additional inventory and $35,000 for additional accounts receivable. Accounts payable are expected to increase by $100,000. The project has a 5-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 25 percent of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate sales of $554,000 and costs of $430,000 in the first year, and both the sales and the costs are expected to grow by 5% each year thereafter. The tax rate is 35 percent and the required rate of return is 15 percent. Answer the following questions using Excel (or a similar alternative such as google spreadsheet). Importantly, in your spreadsheet, use cell references to input data and use built-in formulas whenever possible.

1. Calculate CFFA for each year of the project.

2. Evaluate the following investment criteria: NPV, IRR, Payback Period, Discounted Payback Period, Average Accounting Return, and Profitability Index. Show both the result and the Excel formula you used to obtain the result. Discuss whether you would or would not accept the project based on NPV and IRR.

Reference no: EM13154396

Questions Cloud

What is the molality of a solution : What is the molality if a solution in which 15 g of I2 is dissolved in 500. g of alcohol?

Explain what is the molecular formula : How many moles of each of the following were in the original sample? What is the molecular formula?

Non-guaranteed residual values on generators : The company estimates that the non-guaranteed residual values on generators are equal to an average of 10 percent of the historical cost of the generators. Finance Here Sales & Service can expect that:

What is the standard half-cell (eo) for silver : A half-cell, made by dipping a silver wire into 0.05 M aqueous AgNO, at 298 OK, develops a half-cell potential of +0.740 volts. What is the standard half-cell (Eo) for silver?

Average accounting return, and profitability index : Evaluate the following investment criteria: NPV, IRR, Payback Period, Discounted Payback Period, Average Accounting Return, and Profitability Index. Show both the result and the Excel formula you used to obtain the result. Discuss whether you would o..

Calculate each project-s expected return and variance : Calculate each project's expected return, variance, and standard deviation. Rank the projects on the basis of (1) expected return and (2) risk. Which project would you choose?

How many liters of oxygen collected over h2o : How many liters of oxygen collected over H2O and measured at 27 degrees Celsius and 745.0 mm Hg can be prepared by decomposing 4.421 grams of gold (III) oxide? The vapor pressure of H2O at 27 degrees Celsius is 26.7 mm Hg.

Problem on interest payable annually : Novastar Corporation issued 2,000 of its 1,000, 10% ten-year bonds dated July 1, Year 1, at a time when the market paid 9% for bonds of similar risk. Interest is payable annually.

Find the nominal interest rate for a debt security : find the nominal interest rate for a debt security given the following information: real rate = 2%, liquidity premiun = 2%, defalult risk premium = 4%, maturity risk premium = 3%, and the inflation premium = 3%

User Account

All Pages