Dickerson Co

question 94

Essay

Dickerson Co. is evaluating a project requiring a capital expenditure of $810,000. 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:
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 .893, .797, .712, and .636, respectively.
Required:
Determine the average rate of return on investment, including the effect of depreciation on the investment.

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Definitions:

BAT Model

Stands for Behavioral Adjustment Tax, a concept in economic theories but without a standard definition; alternatively, it may refer to niche or specific theoretical models not widely recognized in mainstream economics.

Miller-Orr Model

A financial model used to manage the cash inventory of a firm by setting upper and lower limits on cash balances, determining when to transfer funds.

Cost of Borrowing

The cost of borrowing is the total expense that a company or individual incurs in taking out a loan, including interest payments, fees, and any other charges.

Cash Flows

The net amount of cash being transferred into and out of a business, used as an indicator of financial health.