Homework Assignment

Measurement Question: An investment of \$100,000 promises an after-tax cash flow of \$36,000 per year for 6 years with no residual value.

Find the investment’s accounting rate of return.
Find the investment’s payback period.
Find the investment’s net present value at a 15 percent discount rate
Find the investment’s internal rate of return
Assuming the required rate of return on the investment is 15 percent, would you recommend this investment? Explain your answer using the results from your answers to questions a-d as appropriate.

A company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below.

Alternative
I
Alternative
II
Initial investment
\$64,000
\$120,000
Annual receipts
\$50,000
\$60,000
Annual disbursements
\$20,000
\$12,000
Annual depreciation
\$16,000
\$20,000
Expected life
4 years
6 years
Salvage value
0
0

At the end of the useful life of whatever equipment is chosen the product will be discontinued. The company’s tax rate is 50 percent and its cost of capital is 10 percent.

Calculate the Cash flow paying particular attention to the cash flow impact of taxes and depreciation,
Calculate the net present value of each alternative.
Calculate the internal rate of return for each alternative.
If the company can implement only one of the two alternatives, and there is no restriction on investment amount, which alternative should be chosen? Why?

Instructions: Analyze the attached Balance Sheet and Income statement, calculating and interpreting the following ratios, and making a conclusion on the financial position of the company addressing the 3 financial categories.

Profitability Ratios (in %): Return on equity, Return on assets, Return on invested capital, Profit margin, Gross margin

Turnover-Control Ratios; Asset turnover, Fixed-asset turnover, Inventory turnover, Collection period (days), Days’ sales in cash, Payables period

Leverage and Liquidity Ratios: Assets to equity, Debt to assets, Debt to equity, Times interest earned, Current ratio, Acid test ratio.

Pages (550 words)
Approximate price: -

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