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Elegant Home Company operates a number of home improvement stores in a metropolitan area. Elegant Home's management estimates that if it invests $300,000 in a new computer system, it can save $69,000 in annual cash operating costs. The system has an expected useful life of 8 years and no terminal disposal value. The required rate of return is 10%. Ignore income tax issues and assume all cash flows occur at year-end except for initial investment amounts. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Euture Valve oFAnnuivo Eabr Read the requirements Reference a. Calculate the net present value for the new computer system. (Abbreviations used: FV = future value; PV = present value. Use factor amounts rounded to three decimal places. Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) First, select the formula labels, then enter the amounts and calculate the net present value. Net present value b. Calculate the internal rate of return (IRR) for the computer system (using the interpolation method). To calculate the IRR, begin by selecting the formula labels, then enter amounts and calculate the discount factor for the computer system. (Round the discount factor to three decimal places, XXXX.) Discount factor

Elegant Home Company operates a number of home improvement stores in a metropolitan area. Elegant Home's management estimates that if it invests $300,000 in a new computer system, it can save $69,000 in annual cash operating costs. The system has an expected useful life of 8 years and no terminal disposal value. The required rate of return is 10%. Ignore income tax issues and assume all cash flows occur at year-end except for initial investment amounts. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Euture Valve oFAnnuivo Eabr Read the requirements Reference a. Calculate the net present value for the new computer system. (Abbreviations used: FV = future value; PV = present value. Use factor amounts rounded to three decimal places. Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) First, select the formula labels, then enter the amounts and calculate the net present value. Net present value b. Calculate the internal rate of return (IRR) for the computer system (using the interpolation method). To calculate the IRR, begin by selecting the formula labels, then enter amounts and calculate the discount factor for the computer system. (Round the discount factor to three decimal places, XXXX.) Discount factor

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 2CE
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Elegant Home Company operates a number of home improvement stores in a metropolitan area. Elegant Home's management estimates that if it invests $300,000 in a new computer system, it can save $69,000 in annual cash operating costs. The system has an expected useful life of 8 years and no terminal disposal value. The required rate of return is 10%. Ignore income tax issues and assume all cash flows occur at year-end except for initial investment amounts. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Euture Value oT Annuity of $1 tabt Read the requirements. Reference a. Calculate the net present value for the new computer system. (Abbreviations used: FV = future value; P = present value. Use factor amounts rounded to three decimal places. Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) First, select the formula labels, then enter the amounts and calculate the net present value. Net present value b. Calculate the internal rate of return (IRR) for the computer system (using the interpolation method). To calculate the IRR, begin by selecting the formula labels, then enter amounts and calculate the discount factor for the computer system. (Round the discount factor to three decimal places, X.XXX.) Discount factor
Transcribed Image Text:Elegant Home Company operates a number of home improvement stores in a metropolitan area. Elegant Home's management estimates that if it invests $300,000 in a new computer system, it can save $69,000 in annual cash operating costs. The system has an expected useful life of 8 years and no terminal disposal value. The required rate of return is 10%. Ignore income tax issues and assume all cash flows occur at year-end except for initial investment amounts. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Euture Value oT Annuity of $1 tabt Read the requirements. Reference a. Calculate the net present value for the new computer system. (Abbreviations used: FV = future value; P = present value. Use factor amounts rounded to three decimal places. Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) First, select the formula labels, then enter the amounts and calculate the net present value. Net present value b. Calculate the internal rate of return (IRR) for the computer system (using the interpolation method). To calculate the IRR, begin by selecting the formula labels, then enter amounts and calculate the discount factor for the computer system. (Round the discount factor to three decimal places, X.XXX.) Discount factor
Next, using the appropriate discount table, determine the two rates of return that the calculated discount factor falls in between. Input the discount factors and calculate the differences between them. (Enter all factor amounts to three decimal places, X.XXX.) Discount factors Discount factor above calculated IRR rate Calculated IRR rate Discount factor below calculated IRR rate Difference Finally, using straight-line interpolation, calculate the internal rate of return. (Round your answer to the nearest hundredth of a percent, X.XX%.) The IRR (internal rate of return) is %.
Transcribed Image Text:Next, using the appropriate discount table, determine the two rates of return that the calculated discount factor falls in between. Input the discount factors and calculate the differences between them. (Enter all factor amounts to three decimal places, X.XXX.) Discount factors Discount factor above calculated IRR rate Calculated IRR rate Discount factor below calculated IRR rate Difference Finally, using straight-line interpolation, calculate the internal rate of return. (Round your answer to the nearest hundredth of a percent, X.XX%.) The IRR (internal rate of return) is %.
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