Question

1. What is the present value of $1,000 at 8% to be received in each of the next 5 years?

2. Calculate the return on investment, given the following:

Avg. invested assets = $2,000,000

Annual Depreciation = $35,000

Net Cash Flows = $350,000

3. Calculate the return on investment for a company with a net income of a product of $55,000, net cash flows of 35,000 and avg invested assets on that product was 645,000

4. true or false: Future Val. of 1000 invested in an invest. yielding 8% in 12 yrs will be 2518.

Answer 1

Answer 1 . 1000$ will be received in each of the next 5 years.This forms an annuity.  Therefore, we can use the Present value annuity formula .(Assuming they will be received at the end of the years )
PVAF (5,8%)= 3.9927

Present value = 1000*3.9927
= 3992.7$
=3993$


Answer 2 . Return on investment = Net income / Average invested assets
Average invested assets is the average of the assets of the current year and last year .

Net cash flows are inclusive of depreciation as depreciation is a non cash expense .
Depreciation is added in Profit after Tax (Net Income) to arrive at Net cash flows

Net income = Net cash Flows-annual dep
= 350000-35000
= 315000/

ROI = (315000/2000000)*100
=15.75 %

Answer 3 .Return on investment = Net income / Average invested assets
Net income = 55000
Average invested assets =6,45,000
ROI - (55000/645000)*100
= 8.52%



Answer 4 . Future value = P(1+r)ⁿ
Future value = 1000(1.08)¹²
= 1000*2.518
=2518$

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IT is True .