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Question: Hearne Company has a number of potential capital investments. Because these projects vary in natu…

by Essaynice Tutors | Sep 9, 2023 | finance

Hearne 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. Assume
straight line depreciation method is used.

Project 1: Retooling
Manufacturing Facility

This project would require an initial investment of $4,850,000.
It would generate $865,000 in additional net cash flow each year.
The new machinery has a useful life of eight years and a salvage
value of $1,000,000.

Project 2: Purchase
Patent for New Product

The patent would cost $3,400,000, which would be fully amortized
over five years. Production of this product would generate $425,000
additional annual net income for Hearne.

Project 3: Purchase a
New Fleet of Delivery Trucks

Hearne could purchase 25 new delivery trucks at a cost of
$115,000 each. The fleet would have a useful life of 10 years, and
each truck would have a salvage value of $5,000. Purchasing the
fleet would allow Hearne to expand its customer territory resulting
in $200,000 of additional net income per year. Please use the
decimal parameters in red.

Question: Hearne Company has a number of potential capital investments.Because these projects vary in natu...

Show transcribed image text Required 1. Determine each project's accounting rate of return. (Round your answers to 2 decimal places.) Accounting Rate of Return Project 1 Project 2 Project 3 2. Determine each project's payback period. (Round your answers to 2 decimal places.) Payback Period Project 1 Years Project 2 Years Project 3 Years

Required 1. Determine each project's accounting rate of return. (Round your answers to 2 decimal places.) Accounting Rate of Return Project 1 Project 2 Project 3 2. Determine each project's payback period. (Round your answers to 2 decimal places.) Payback Period Project 1 Years Project 2 Years Project 3 Years