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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem

Net Present Value

Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $2,700,000. Producing the printer requires an investment in new equipment costing $2,880,000. The printer has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $360,000. Working capital is also expected to increase by $360,000, which Talmage will recover by the end of the new product’s life cycle. Annual cash operating expenses are estimated at $1,620,000. The required rate of return is 8%.

Required:

Prepare a schedule of the projected annual cash flows.

Calculate the NPV using only discount factors from Exhibit 12B.1 (p. 670).

Calculate the NPV using discount factors from both Exhibits 12B.1 and 12B.2 (p. 671).

1.

To determine

Construct a schedule of the projected cash flows.

Explanation

Schedule of the Projected Cash Flows:

A schedule that shows the projected inflows and outflows of cash for an upcoming period often a year is known as a schedule of the projected cash flows. These projected cash flows help to make the capital investment decision.

Schedule of the projected cash flows:

YearItemCash flow($)
0Equipment(2,880,000)
 Working capital(36...

2.

To determine

Find out the NPV.

3.

To determine

Find out the NPV.

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