Using the tables in Exhibits 26-3 and 26-4, determine the present value of the following cash flows, discounted at an annual rate of 15 percent. a. $40,000 to be received 20 years from today. b. $24,000 to be received annually for 10 years. c. $16,000 to be received annually for five years, with an additional $20,000 salvage value expected at the end of the fifth year.
Using the tables in Exhibits 26-3 and 26-4, determine the present value of the following cash flows, discounted at an annual rate of 15 percent. a. $40,000 to be received 20 years from today. b. $24,000 to be received annually for 10 years. c. $16,000 to be received annually for five years, with an additional $20,000 salvage value expected at the end of the fifth year.
Chapter5: Operating Activities: Purchases And Cash Payments
Section: Chapter Questions
Problem 2.1C
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b. If the machine manufactured by Akron Industries has a payback period of 60 months, what is its cost?
c. Which of the machines is most attractive based on its respective payback period? Should Heartland base its decision entirely on this criterion? Explain your answer.
LO26-1, LO26-3
EXERCISE 26.3
Understanding Return on Average Investment Relationships
Foz Co. is considering four investment proposals (A, B, C, and D). The following table provides data concerning each of these investments.
A
в
D
Investment cost
$50,000 $75,000 $40,000
$?
Estimated salvage value
10,000
15,000
?
2,000
Average estimated net income
9,000
?
6,000 8,000
Return on average investment
?
18%
25%
20%
LO26-3
EXERCISE 26.4
Discounting Cash Flows
Solve for the missing information pertaining to each investment proposal.
Using the tables in Exhibits 26–3 and 26-4, determine the present value of the following cash flows, discounted at an annual rate of 15 percent.
a. $40,000 to be received 20 years from today.
b. $24,000 to be received annually for 10 years.
c. $16,000 to be received annually for five years, with an additional $20,000 salvage value expected at the end of the fifth year.
d. $30,000 to be received annually for the first three years, followed by $20,000 received annually for the next two years (total of five years in which cash is received).
page 1135
LO26-3
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