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Problem 1. Creighton Company’s balance sheet and income statement are provided below: Required: 1) Compute the margin, turnover, and return on investment for Creighton Company. 2) What is the advantage of expanding the ROI formula to measure margin and turnover separately? Problem 2. Delta Company is evaluating two different capital investments, Project X and Y. Either X or Y would cost $100,000, and the company cannot afford to do both. The company expects that Project X would provide net cash inflows of $30,000 per year for 5 years. For Project Y, the net cash inflows are expected to be as follows: Delta’s cost of capital is 12% Required: 1) Calculate the present value index for Project X and for Project Y. 2) Indicate whether each of the projects is an acceptable investment. 3) Which of the two projects should Delta implement?

Problem 1. Creighton Company’s balance sheet and income statement are provided below:

Required:

1) Compute the margin, turnover, and return on investment for Creighton Company.
2) What is the advantage of expanding the ROI formula to measure margin and turnover separately?

 

Problem 2. Delta Company is evaluating two different capital investments, Project X and Y. Either X or Y would cost $100,000, and the company cannot afford to do both. The company expects that Project X would provide net cash inflows of $30,000 per year for 5 years. For Project Y, the net cash inflows are expected to be as follows:

Delta’s cost of capital is 12%

Required:

1) Calculate the present value index for Project X and for Project Y.
2) Indicate whether each of the projects is an acceptable investment.
3) Which of the two projects should Delta implement?

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