Question
In: Finance
Elizabeth & Nancy are each contemplating an expenditure alternative. Advise them on the best alternative. Elizabeth’s...
Elizabeth & Nancy are each contemplating an expenditure alternative. Advise them on the best alternative.
Elizabeth’s alternative involves making payments of $1700 now and $2210 at the end of every six months for 6 years. Interest is 12% compounded semi-annually.
Nancy’s alternative involves making end of monthly payments of $500 for seven years. Interest is 12% compounded monthly.
Which is the lowest expenditure alternative?
Solutions
Expert Solution
Answer - Elizabeth's Alternative is lowest expenditure alternative
Workings
We will calculte present value of both the alternative using a financial calculator
Alternative 1 - Elizabeth
First of all we will calculate the present value of $2210 at the end of every six months for 6 years. Interest is 12% compounded semi-annually. and then add 1700 to it to get the total expenditure in present value terms
PMT = 2210
N = 12 ............(2 paymnets per year * 6years)
I/Y = 6 ............... (12/2)
CPT - PV = 18528.29
Now we will add 1700 to the present value calculted above to get the total expenditure in present value terms
Total Expendititute in present value terms = 18528.29 + 1700 = 20228.29
Alternative 2 - Nancy
We have the following information
PMT = 500
I/Y = 1 ............. (12/12)
N = 84 .............. (12 months * 7years)
CPT - PV = 28,324
Total Expendititute in present value terms = 28,324
jeff jeffy answered 1 year agoRelated Solutions
Bart and Elizabeth Forrest are married and have no dependents. They have asked you to advise...
Bart and Elizabeth Forrest are married and have no dependents.
They have asked you to advise them whether they should file jointly
or separately in 2017. They present you with the following
information:
Bart
Elizabeth
Joint
Salary
$38,000
Business net income
$110,000
Interest income
400
1,200
$2,200
Deductions for AGI
2,400
14,000
Medical expenses
10,427
3,358
State income tax
800
1,800
Real estate tax
3,800
Mortgage interest
4,200
Unreimbursed employee expenses
1,200
If they file separately, Bart and Elizabeth will...
Bart and Elizabeth Forrest are married and have no dependents. They have asked you to advise...
Bart and Elizabeth Forrest are married and have no dependents.
They have asked you to advise them whether they should file jointly
or separately in 2018. They present you with the following
information:
Bart
Elizabeth
Joint
Salary
$38,000
Business net income
$110,000
Interest income
400
1,200
$2,200
Deductions for AGI
2,400
14,000
Medical expenses
10,427
3,358
State income tax
900
1,800
Real estate tax
3,800
Mortgage interest
4,200
Unreimbursed employee expenses
1,200
If they file separately, Bart and Elizabeth will...
B&E Incorporated is trying to select the best alternative from two options. Each alternative has an...
B&E Incorporated is trying to select the best alternative
from two options. Each alternative has an initial cash outlay of
$100,000. The cash flows for the alternatives are as follows:
Year
Investment A
Investment B
1
$ 10,000
$ 50,000
2
20,000
40,000
3
30,000
30,000
4
5
40,000
150,000
0
0
For each alternative investments, compute the Payback Method and
select the best investment (using the Payback Method Results).
The management of Faulu Limited is contemplating to invest in 8 projects. The capital expenditure during...
The management of Faulu Limited is contemplating to invest in 8
projects. The capital expenditure during the year has been rationed
to sh.500,000 and the projects have equal risk and should be
discounted at the firm’s cost of capital of 10%
Project
Cost (sh.)
Project life (years)
Cash flow per year (sh.)
A
B
C
D
E
F
G
H
400,000
50,000
100,000
75,000
75,000
50,000
250,000
250,000
20
10
8
15
6
5
10
3
58600
55000
24000
12000...
The Board of Directors has ask you to advise them as to whether it would be...
The Board of Directors has ask you to advise them as to whether
it would be better to compensate employees with an additional bonus
or restricted stock units (RSUs). They have noted that the
Corporate tax rate is expected to decline from 35% to 15% and the
Individual tax rates is expected to decline from 40% TO 20%. next
year. Advice the Board as to the different tax treatment from both
an employer and employee perspective of Bonuses vs RSU’s....
A supervisor asks you to advise them on a project's value. The cost of capital is...
A supervisor asks you to advise them on a project's value. The
cost of capital is 8.4%
Year
Cash flows
0
-$119,000
1
23,000
2
23,000
3
37,000
4
32,000
5
52,000
The NPV of the project is $____. Round to two decimal places
What are the alternative costing methods? Describe the scenario in which each costing method can best...
What are the alternative costing methods? Describe the scenario
in which each costing method can best be used.
Henry is trying to select the best investment from among 3 alternatives. Each alternative involves an...
Henry is trying to select the best investment from among 3
alternatives. Each alternative involves an initial outlay of
200,000$. Their cash flows returns for each project are as follows
(in $):
year project
A project B
project C
1
110,000
150,000
0
2
120,000
140,000
0
3
130,000
130,000
145,000
4
140,000 0
155,000
5
150,000 0
160,000
a) Evaluate and rank each alternative
based...
Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa.
Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR10,000. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 3,000, 4,000, 5,000, 6,000, and 7,000. The parent firm’s cost of capital in dollars is 9.5 percent. Long-run inflation is forecasted to be 3 percent per annum in the United States and 7 percent in South Africa. The...
Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The...
Delta Company, a U.S. MNC, is contemplating making a foreign
capital expenditure in South Africa. The initial cost of the
project is ZAR12,000. The annual cash flows over the five year
economic life of the project in ZAR are estimated to be 3,500;
4,500; 5,500; 6,500; and 7,500. The parent firm’s cost of capital
in dollars is 8.5%. Long-run inflation is forecasted to be 3.5% per
annum in the U.S. and 7.25% percent in South Africa. The current
spot foreign...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Journal article summary on inter-group conflict Peer Reviewed Journal article from past 3 years. Please include...
- "Ethical Considerations" Please respond to the following: Reflect upon the responsibilities placed on auditors by the...
- A Japanese company has a bond outstanding that sells for 93 percent of its ¥100,000 par...
- What is the difference among the principles of modularization, abstraction, encapsulation, and separation of interface and...
- An investment project costs $20,100 and has annual cash flows of $4,400 for six years. ...
- PUT IN JAVA PROGRAMMING The StockB class: Design a class named StockB that contains the following...
- Draw a DFA for the following ( ∑ = {0,1}): Set of all strings with.
ADVERTISEMENT