Essay Week 5 Assignment

1160 Words Sep 26th, 2013 5 Pages
Chapter Eight Problems

Please complete the following 5 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.

Chapter 8 Exercise 1:
1. Basic present value calculations
Calculate the present value of the following cash flows, rounding to the nearest dollar:
A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.
12000/(1.12)^5 = $6,809
An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return. 16000[(1.14^12-1)/0.14(1.14)^12] = $90,565
A single
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On the basis of similar operations in other parts of the country, management anticipates that each trip will be sold out and that 120,000 passengers will be carried each season. Ignore income taxes.

Instructions:
By using the net-present-value method, determine whether STL Entertainment should acquire the boat. Assume a 14% desired return on all investments- round calculations to the nearest dollar.

Using the net-present-value method:
{(5*300-1000)*400-120,000}
(14%,10)+1000,000
(14%,10)-500,000=444,264-500,000= -$55,736
In my personal opinion, by looking at the above calculations STL Entertainment should not acquire the boat.

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Chapter 8 Problem 4:
4. Equipment replacement decision
Columbia Enterprises is studying the replacement of some equipment that originally cost $74,000. The equipment is expected to provide six more years of service if $8,700 of major repairs are performed in two years. Annual cash operating costs total $27,200. Columbia can sell

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