Williams Company is evaluating a project requiring a capital expenditure of $480,000. The project has...
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Accounting
Williams Company is evaluating a project requiring a capital expenditure of $480,000. The project has an estimated life of 4 years and salvage value at the end of years 4 is $20,000. The estimated net income and net 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 $60,000 $160,000
4 $30,000 $150,000
$260,000 $720,000
The companys minimum desired rate of return(hurdle rate) for the net present value analysis is 15%.
Determine (a) the accounting rate of return on investment, and (b) the net present value. Use the following factors for years 1 through 4 respectively: .870, .756, .658, .572.
4
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