Question

In: Accounting

1a.A decrease in the discount rate: a.will decrease the present value of future cash flows b.will...

1a.A decrease in the discount rate:

a.will decrease the present value of future cash flows

b.will have no effect on net present value

c.is one method of compensating for reduced risk

d.will increase the present value of future cash flows

1b.The time it will take to earn back, in the form of cash inflows from operations, the initial dollars invested in a project is known as the:

a.accelerated recovery period

b.internal return period

c.payback period

d.accounting return period

1c.A company has gathered the following data on a proposed investment project:

Investment required in equipment      $30,000
Annual cash inflows                                          $6,000
Salvage value of equipment                                     0
Life of the investment                                   15 years
Required rate of return                                           10%

The company uses straight-line depreciation on all equipment.

The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:

a.20.0%

b.10.0%

c.18.0%

d.13.3%

1d. Management is considering the purchase of a machine that would cost $360,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $78,000 per year. The company requires a minimum pretax return of 11% on all investment projects.

The net present value of the proposed project is closest to:

Present Value of $1              Present Value of Annuity
Periods    11%                       Periods      11%                                                     
    1       0.901                            1         0.901
2       0.812                            2        1.713
    3       0.731                            3         2.444
    4       0.659                            4         3.102
    5       0.593                            5         3.696
    6       0.535                            6         4.231
    7      0.482                             7         4.712
    8      0.434                             8          5.146
    9    0.391                             9          5.537
   10    0.352                            10          5.889
  

a.$15,646

b.$7,536

c.$89,588

d.$186,000

1e.Assume you can invest money at a 14% rate of return. How much money must be invested now in order to be able to withdraw $5,000 from this investment at the end of each year for 8 years, the first withdrawal occurring one year from now?

Present Value of $1              Present Value of Annuity
Periods    14%                       Periods      14%                                                     
    1       0.877                            1         0.877
2       0.769                            2        1.647
    3       0.675                            3         2.322
    4       0.592                            4         2.914
    5       0.519                            5         3.433
    6       0.456                            6         3.889
    7      0.400                             7         4.288
    8      0.351                             8          4.639
    9    0.308                             9          4.946
   10    0.270                            10          5.216

a.$23,195

b.$24,840

c.$21,440

d.$1,755

1f.Assuming a 14% interest rate, which of the following is closest to the total present value of the following payments?

Year 3    $12,000
Year 5    $10,000

Present Value of $1              Present Value of Annuity
Periods    14%                       Periods      14%                                                     
    1       0.877                            1         0.877
2       0.769                            2        1.647
    3       0.675                            3         2.322
    4       0.592                            4         2.914
    5       0.519                            5         3.433
    6       0.456                            6         3.889
    7      0.400                             7         4.288
    8      0.351                             8          4.639
    9    0.308                             9          4.946
   10    0.270                            10          5.216

a.$12,978

b.$13,290

c.$8,100

d.$32,054

Solutions

Expert Solution


Related Solutions

1. An increase in the discount rate: A) will increase the present value of future cash...
1. An increase in the discount rate: A) will increase the present value of future cash flows. B) will have no effect on net present value. C) will reduce the present value of future cash flows. D) is one method of compensating for reduced risk. 2. Suddeth Corporation has entered into a 6 year lease for a building it will use as a warehouse. The annual payment under the lease will be $2,468. The first payment will be at the...
What is the present value of the following cash flows at a discount rate of 6%?...
What is the present value of the following cash flows at a discount rate of 6%? Years 1 – 5 $10,000 Years 6 – 10 $12,000 Years 11 – 20 $15,000 A. $109,896 B. $119,157 C. $141,544 D. $129,639 If a professor currently earns $80,000 per year and expects annual salary increases of 3%, approximately how long will the professor have to work before his/her annual salary reaches $500,000 per year? A. 62 years B. 49 years C. 101 years...
If the discount rate is 12%, what is the present value of the following cash flows:...
If the discount rate is 12%, what is the present value of the following cash flows: Year Cash Flow 1 $10,000 2 $11,000 3 $12,000 4 $13,000 5 $14,000 6-15 $15,000 each year a. $144,618 b. $90, 537 c. $127,923 d. $127,197
Given the following cash flows and a discount rate of 9.5%, the net present value is...
Given the following cash flows and a discount rate of 9.5%, the net present value is closest to: CF0 $ (27.50) CF1 $ 8.75 CF2 $ 11.30 CF3 $ 14.90 St. Lawrence Ventures had cash flow from assets in 2014 of $1,875 (all values in thousands). The company paid interest expense of $370 and the cash flow to shareholders was $1,425. St. Lawrence: ct an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer....
What is the net present value of the following cash flows if the relevant discount rate...
What is the net present value of the following cash flows if the relevant discount rate is 9 percent? Year Cash Flow 0 -11,520 1 81 2 650 3 880 4 2300 5 15,800 A) $1,300.54 B) $1,913.12 C) $1,679.22 D) $1,022.87 E) $1,506.54 45) SNR is considering a project with an initial cost of $50,000. The project will produce cash inflows of $10,000 a year for the first two years and $12,000 a year for the following three years....
What is the present value of the following set of cash flows when the discount rate...
What is the present value of the following set of cash flows when the discount rate is 11% p.a. compounded monthly?  (Rounded to the nearest dollar). Year 1 $260 Year 2 $330 Year 3 $800 Year 4 $760 $1,605 $1,660 $1,565 $1,560 None of the above What is the future value of $6,000 invested for 8 years at an annually compounded interest rate of 11.5% p.a.? (Rounded to the nearest dollar). $14,980 $14,220 $14,333 $14,560 None of the above Melbourne Ltd...
Determine the present value of the mixed stream of cash flows using a 6% discount rate....
Determine the present value of the mixed stream of cash flows using a 6% discount rate. DO not place a $ sign front of the number and use 2 decimals. For example 1234.56 CF1 $900 CF2 $800 CF3 $1200 CF4 $1600 CF5 $1900
Calculate the present value of the following cash flows given a discount rate of 12%: Year...
Calculate the present value of the following cash flows given a discount rate of 12%: Year 1 Year 2 Year 3 Year 4 Cash Flows $1,500 $4,500 $8,500 $12,000
If the appropriate discount rate for the following cash flows is 11.7 percent per year, what is the present value of the cash flows?
If the appropriate discount rate for the following cash flows is 11.7 percent per year, what is the present value of the cash flows?YearCash Flow1$21,6002$25,9003$38,7004$16,200   Group of answer choices$71,407.19$74,221.80$78,270.77$80,407.16$81,121.03
The discount rate that equates the present value of a project’s cash inflows with the present...
The discount rate that equates the present value of a project’s cash inflows with the present value of the project’s outflows is:
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT