Investment Evaluation
Harmony Company had a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, Harmony's management is finding it difficult to compare them.
Purchase Patent for New Product
The patent would cost $8,200,000 which would be fully amortized over 10 years. Production of this product would generate $1,650,000 additional annual net income for Harmony.
- Determine the projects accounting rate of return and payback period.
- Using a discount rate of 10%, calculate the net present value.
- Determine the profitability index