MANAGERIAL ACCOUNTING >C<
3rd Edition
ISBN: 9781259948503
Author: Whitecotton
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 11, Problem 5.2GBP
To determine
Concept introduction:
Present Value: Present value is the current value of money that will be received in future. It helps the companies in taking investment decisions.
To indicate:
Best option along with the reason.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Your landlord is planning to renovate the pool in your apartment. The New pool will cost 152,895 dollars, which will add money to you rent but will increase the revenue for your landlord by 54,500 at year 4 and 87325 at years 10.
He calculates that the operational cost will be 13250. The poll has a salvage value of 68,560 after 8 years.
a) At a discount rate of 12.45% find the present value of this plan
b) draw a cash flow diagram and show if your land lord's plan is viable or not
If offered the choice of receiving $500 today or $500 in five year's time, which option would you choose, and why?
$500 today because time has value and by receiving the money today you can put it to use immediately.
O $500 in five year's time because time has value and so the $500 will be worth more then.
$500 in five year's time since waiting a year does not involve an opportunity cost.
Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $27,500, and Harold expects to spend about $600 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,900. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,575 per year, including maintenance. Assume a discount rate of 12 percent. Required: Calculate the net present value of Harold’s options. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Advise Harold about which option he should choose.
Chapter 11 Solutions
MANAGERIAL ACCOUNTING >C<
Ch. 11 - Prob. 1QCh. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Which capital budgeting methods incorporate the...Ch. 11 - What is a company’s hurdle rate? How is it...Ch. 11 - How do cash flow and net income differ? Explain...Ch. 11 - In everyday terms, explain what information the...Ch. 11 - What do a positive NPV and a negative NPV indicate...Ch. 11 - Prob. 9QCh. 11 - Prob. 10Q
Ch. 11 - Why is the net present value method generally...Ch. 11 - Briefly explain how the profitability mdcx is...Ch. 11 - Prob. 13QCh. 11 - Prob. 14QCh. 11 - Prob. 15QCh. 11 - When would you use the PV of annuity table instead...Ch. 11 - Prob. 17QCh. 11 - Which of the following requires managers to...Ch. 11 - Prob. 2MCCh. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - Prob. 5MCCh. 11 - Prob. 6MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Prob. 10MCCh. 11 - Matching Key Terms and Concepts to DefinitionsCh. 11 - Prob. 2MECh. 11 - Prob. 3MECh. 11 - Prob. 4MECh. 11 - Prob. 5MECh. 11 - Prob. 6MECh. 11 - Prob. 7MECh. 11 - Prob. 8MECh. 11 - Computing Present Value of Complex Contract As a...Ch. 11 - Prob. 11MECh. 11 - Prob. 12MECh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Prob. 8ECh. 11 - Prob. 9ECh. 11 - Using NPV to Evaluate Mutually Exclusive Projects...Ch. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 1.1GAPCh. 11 - Prob. 1.2GAPCh. 11 - Prob. 1.3GAPCh. 11 - Prob. 1.4GAPCh. 11 - Prob. 1.5GAPCh. 11 - Prob. 2.1GAPCh. 11 - Prob. 2.2GAPCh. 11 - Prob. 2.3GAPCh. 11 - Prob. 2.4GAPCh. 11 - Prob. 2.5GAPCh. 11 - Making Automation Decision Beacon Company is...Ch. 11 - Prob. 3.1GAPCh. 11 - Prob. 3.2GAPCh. 11 - Prob. 3.3GAPCh. 11 - Prob. 3.4GAPCh. 11 - Prob. 4.1GAPCh. 11 - Prob. 4.2GAPCh. 11 - Prob. 4.3GAPCh. 11 - Prob. 4.4GAPCh. 11 - Prob. 4.5GAPCh. 11 - Prob. 5.1GAPCh. 11 - Prob. 5.2GAPCh. 11 - Prob. 6.1GAPCh. 11 - Evaluating Sustainability Projects Citco Company...Ch. 11 - Evaluating Sustainability Projects Citco Company...Ch. 11 - Evaluating Sustainability Projects Citco Company...Ch. 11 - Prob. 1.1GBPCh. 11 - Prob. 1.2GBPCh. 11 - Prob. 1.3GBPCh. 11 - Prob. 1.4GBPCh. 11 - Prob. 1.5GBPCh. 11 - Prob. 2.1GBPCh. 11 - Prob. 2.2GBPCh. 11 - Prob. 2.3GBPCh. 11 - Prob. 2.4GBPCh. 11 - Prob. 2.5GBPCh. 11 - Prob. 2.6GBPCh. 11 - Prob. 3.1GBPCh. 11 - Comparing, Prioritizing Multiple Projects Harmony...Ch. 11 - Prob. 3.3GBPCh. 11 - Prob. 3.4GBPCh. 11 - Prob. 4.1GBPCh. 11 - Prob. 4.2GBPCh. 11 - Prob. 4.3GBPCh. 11 - Prob. 4.4GBPCh. 11 - Prob. 4.5GBPCh. 11 - Prob. 5.1GBPCh. 11 - Prob. 5.2GBPCh. 11 - Prob. 6.1GBPCh. 11 - Prob. 6.2GBPCh. 11 - Prob. 6.3GBPCh. 11 - Prob. 6.4GBP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- You have to decide whether to invest $100 in a friend's enterprise, where in a year's time the money will increase to $130. You have agreed that your friend will then repay you $120, keeping $10 for himself But instead he may choose to run away with the whole $130. Any of your money that you don't invest in the enterprise you can invest elsewhere safely at the prevailing rate of interest r and get $100 (1+r) next year. For interest rate r> __A___% there is an equilibrium outcome of the infinitely repeated game in which each period you invest with your friend and he repays as agreed. If the rate of interst is 10% per year, an alternative profit-splitting agreement giving $__B___ for the friend is an equilibrium outcome of the infinitely repeated game, where each period you invest with your friend and he repays as agreed. Answer A= ? Answer B= ?arrow_forwardYour friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $29,500, and Harold expects to spend about $800 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $11,700. Alternatively. Harold could lease the same vehicle for five years at a cost of $3.835 per year, including maintenance. Assume a discount rate of 10 percent. Required: 1. Calculate the net present value of Harold's options. (Euture Value of $1. Present Value of $1. Euture Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your final answers to 2 decimal places. Do not round intermediate calculations.) NPV Purchase Option Lease Optionarrow_forwardAssignment Scenario:Jerry wants to buy an assisted Living Facility in his home town. Currently, the facility makes a profit each year of $10,000. However, the current director mentioned that if Jerry and his company wanted to perform a remodeling on the facility, that he could increase the room rates and make a profit of $40,000 annually. The facility is currently listed for sale for $650,000. However, a local real estate agent for long-term care facilities explained to Jerry that the likelihood of keeping at full capacity after raising the room rates is 70%. Round your answers to the nearest 10th of a decimal ( 14.42659 = 14.4)1. Calculate the Return on Investment (ROI) if the remodel is not done within the first year, we will call this, scenario 1.2. Calculate the ROI for the second scenario, if we are able to remodel and charge more for rooms.3. Calculate the Expected Value of both scenarios. REMEMBER, the likelihood is 70% and the chance it will not happen is 30%.arrow_forward
- Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $28,000, and Harold expects to spend about $650 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $11,100. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,640 per year, including maintenance. Assume a discount rate of 10 percent. Required: 1. Calculate the net present value of Harold's options. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your final answers to 2 decimal places. Do not round intermediate calculations.) Purchase Option Lease Option NPVarrow_forwardRazak has some property for sale and has received two offers. The first offer is for RM89,500 today in cash. The second offer is the payment of RM35,000 today and an additional guaranteed RM70,000 two years from today. If the applicable discount rate is 11.5 percent, which offer should he accept and why? (assuming no cost involved) Select one: A. Kumar should accept the second offer today because it has the lower future value B. Kumar should accept the first offer today because it has the higher present value C. Kumar should accept the second offer because it has the higher present value D. Kumar should accept the first offer as it is a lump sum paymentarrow_forward3. Your favorite neighbor Poindexter learns you are pursuing an MBA and seeks your advice on how to finance his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $26,500, and he expects to spend about $500 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,500. Alternatively, Poindexter could lease the same vehicle for five years at a cost of $5,000 per year, including all maintenance. The lease payments are made at the beginning of each year. Assume a discount rate of 10%. o Provide an analysis for Poindexter at 10%. o Provide the same analysis for good old Poindexter assuming a rate of 5%. At what rate will he be indifferent? oarrow_forward
- After you have a car accident, you are offered by your insurance company a choice of one of three following alternatives: you can have $10,000 now; you can have $2,000 a year for eight years; or you can have $24,000 at the end of eight years. If you can earn 12% each year, which alternative would you choose? You must give the present value of each alternative.Alternative 1 Alternative 2 Alternative 3arrow_forwardmath the present value forw normal work please I can't read tothers Offer I. The buyerin this case was Smythe Manufacturing. They offered Dr. Miller $2 million now plus $100, 000 each year beginning atthe end of year six and continuing through the end of year fifteen. You are Dr. Miller's financial advisor and you feel thatgiven the associated risks to this payment stream, a 10% interest (discount) rate should be used to determine the presentvalue of the offer. Offer II. The buyer in this case was Brouwer Pharmaceutical. They offered 40 percent of their grossprofit on the product for the next four years, with payments beginning at the end of the first year. Brouwer's gross profitmargin was 60%. Sales in year one were projected to be $3 million and are forecasted to grow by 30 percent each yeanthereafter. You are Dr. Miller's financial advisor and you feel that given the associated risks to this payment stream, an8% interest (discount) rate should be used to determine the present value…arrow_forwardUse the information below to answer the following question(s): The owner of the Krusty Krab is considering selling his restaurant and retiring. An investor has offered to buy the Krusty Krab for $350,000 whenever the owner is ready for retirement. The owner is considering the following three alternatives: 1. Sell the restaurant now and retire. 2. Hire someone to manage the restaurant for the next year and retire. This will require the owner to spend $50,000 now, but will generate $100,000 in profit next year. In one year the owner will sell the restaurant for $350,000. Scale back the restaurant's hours and ease into retirement over the next year. This will require the owner to spend $40,000 on expenses 3. now, but will generate $75,000 in profit at the end of the year. In one year the owner will sell the restaurant for $350,000. If the discount rate is 15%, the alternative with the lowest NPV is: #1 with an NPV of approximately $350,000. #2 with an NPV of approximately $341,300. #3…arrow_forward
- You Just won a lottery that promise to pay you 100,000 exactly 10 years from now. Because the 100,000 is guaranteed by the government, opportunities exist to sell the claim today for an immediate single cash payment. a- What is the least you will sell your claim for it you can earn the following rates of retum on similar risk investment during the 10-year period? 1- 5% 2- 8% 3- 11% b- Rework on part a under the assumption that 100,000 payment will be received in 15 years rather than 10 years. c- Explain why you want or do not want to explain you claim.arrow_forwardPart III) An equipment is up for sale and the price is to be negotiated. A prospective buyer estimates that she could keep the equipment for 5 years and make net profit of $7,000 each year by renting it to others. She estimates that she can sell the equipment for $6,000 at the end of 5 years. If she wants a return of 7%, what is the maximum price she should pay to break even?arrow_forwardYou own a construction company and have recently received a contract with the local school district to refurbish one of its elementary schools. You are given an up-front payment from the school district in the amount of $5 million. The contract terms extend from years 2018 to 2020. When would you recognize revenue for this payment? What method of accounting would you use for this construction project and why? What would be the benefits and challenges with your method selection? Give an example of your distribution selection and associated costs of the project (you may estimate based on other industry competitors). What might be some benefits and challenges associated with the other method of construction revenue recognition?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
Fundamentals Of Financial Management, Concise Edi...
Finance
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License