The following data are accumulated by Environmental Services Inc. in evaluating two competring capital investment proposals:
Testing Equip Centrifuge
Amount of investment $42,000 $56,000
Useful life 4 years 5 years
Estimated residual value -0- -0-
Estimated total income over the useful life $10,500 $12,250
Determine the expected average rate of return for each proposal
First Charter Bank Corporation is evaluating two capital investment proposals for a drive-up ATM, each requiring an investment of $250,000 and each with a 8 year life and expected toal net cash flows of $400,000. Location 1 is expected to provide equal annual net cash flows of $50,000 and Location 2 is expected to have the folooowing unequal annual net cash flows:
Year 1 $80,0000 Year 5 37,500
Year 2 70,000 Year 6 37,500
Year 3 50,000 Year 7 37,500
Year 4 50,000 Year 8 37,500
Determine the cash payback period for both proposals.
Solution contains calculations of the expected average rate and payback period.