June CoIs Evaluating a Project Requiring a Capital Expenditure of $620,000

question 60

Essay

June Co.is evaluating a project requiring a capital expenditure of $620,000.The project has an estimated life of four years and no salvage value.The estimated net income and net cash flow from the project are as follows:
? $\begin{array}{rrr}\text { Year }&\text {Net Income}&\text { Net Cash Flow }\\1 & \$ 45,000 & \$ 200,000 \\2 & 85,000 & 240,000 \\3 & 5,000 & 160,000 \\4 & 15,000 & 170,000 \\& \$ 150,000 & \$ 770,000\end{array}$ ?
The company's minimum desired rate of return is 12%.The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively.
Determine: (a) the average rate of return on investment, giving effect to depreciation on the investment, and (b) the net present value.

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Definitions:

Labor Union

An organization of workers formed to protect and advance their rights and interests.

Negotiated Wage

The result of collective bargaining between employers and employees (or their representatives), resulting in agreed-upon salaries.

Widget Industry

A generic term often used to refer to any industry producing unspecified or hypothetical products for illustrative examples in discussions.

Minimum Wage

The lowest legal wage that can be paid to workers, determined by government regulation.