Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. The project has an estimated life of 4 year

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5 days ago

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Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. The project has an estimated life of 4 year

s 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.

Business

2 answers:

arsen [3.2K] · Answer 1 · 2026-04-02T17:19:51+03:00

(a) $240,000 divided by 4 equals $60,000, which is 25% of the average of ($480,000 + $0) divided by 2 gives $240,000. (b) Yearly Present Value of $1 at 15% and Net Cash Flow Present Value: 1.870 gives $210,000 as $182,700, 2.756 gives $200,000 as $151,200, 3.658 gives $160,000 as $105,280, and 4.572 gives $150,000 as $85,800. Total is $720,000 with a Present Value of $524,980. The amount to be invested is $480,000. Therefore, Net Present Value is $44,980.

Mariulka [3.4K] · Answer 2 · 2026-04-02T17:19:01+03:00

Average Rate of Return is calculated as Average Profit divided by Average Investment = 60,000 / 240,000 = 0.25, which converts to 25% when multiplied by 100. Net Present Value is determined by subtracting Initial Investment from Present Value of Future Cash Flows = $524,980 - $480,000 = $44,980. To elaborate: Profits total 240,000 divided by 4 equals 60,000, while Average Investment is calculated as 480,000 divided by 2, resulting in 240,000. The Present Value is $524,980. For Year 1, 210,000 multiplied by 0.870 equals 182,700. Year 2, 200,000 times 0.756 equals 151,200. Year 3, 160,000 multiplied by 0.658 equals 105,280. Year 4, 150,000 times 0.572 gives 85,800.