Allister Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them
| Project 1: Retooling Manufacturing Facility |
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This project would require an initial investment of $4.29 million. It would generate $743,067 in additional cash flow each year. The new machinery has a useful life of 7 years and a salvage value of $560,000.
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| Project 2: Purchase Patent for New Product |
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The patent would cost $5,180,000, which would be fully amortized over 4 years. Production of this product would generate $1,776,740 additional annual net income for Allister.
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| Project 3: Purchase a New Fleet of Delivery Trucks |
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Allister could purchase 25 new delivery trucks at a cost of $95,400 each. The fleet would have a useful life of 9 years, and each truck would have a salvage value of $4,400. Purchasing the fleet would allow Allister to expand its customer territory resulting in $610,560 of additional net income per year.
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| Requirement 1: |
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Determine each project's accounting rate of return. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)
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| Requirement 2: |
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Determine each project's payback period. (Round your answers to 2 decimal places.)
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| Requirement 3: |
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Using a discount rate of 11 percent, calculate the net present value of each project. (Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
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| Requirement 4: |
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Determine the profitability index of each project. (Round your intermediate calculations and final answers to 4 decimal places.)
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