Compute the expected value of the annual net cash flows .

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Answer 1

Question

Chapter 12, Problem 2MAD

a.

To determine

Compute the expected value of the annual net cash flows.

b.

To determine

Compute the net present value of the equipment, assuming 10% desired rate of return for the given annual net cash flows in part (a).

c.

To determine

Recommend whether Company S should invest in the equipment based upon parts (a) and (b).

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PAR Ltd is considering an investment and has determined the following: Expected net cash flows: – Year 1 $65,967 – Year 2 $70,290 – Year 3 $135,391 – Year 4 $103,435 – Year 5 $100,998 Annual depreciation $20,660 Period of investment 5 years Initial investment $611,246 Value at end of the investment period $124,671 Calculate the Accounting Rate of Return. Express your answer in a percentage with 2 decimal places.

Xander Inc. has prepared the following sensitivity analysis: Line Item Description Amount Amount Amount Estimated Annual Net Cash Flow $500,000 $600,000 $700,000 Present value of annual net cash flows (× 4.487) $2,243,500 $2,692,200 $3,140,900 Present value of residual value 50,000 50,000 50,000 Total present value $2,293,500 $2,742,200 $3,190,900 Amount to be invested (3,000,000) (3,000,000) (3,000,000) Net present value $(706,500) $(257,800) $190,900 In addition, it has assigned the following likelihoods to the three possible annual net cash flows: $500,000, 70%; $600,000, 20%; and $700,000, 10%. Based on an expected value analysis, which of the following statements is accurate? a. The expected value of the annual net cash flow is $540,000, and the project should be accepted. b. The expected value of the annual net cash flow is $660,000, and the project should be accepted. c. The expected value of the annual net cash flow is $660,000, and the project…

Answer 2

Question

Chapter 12, Problem 2MAD

a.

To determine

Compute the expected value of the annual net cash flows.

b.

To determine

Compute the net present value of the equipment, assuming 10% desired rate of return for the given annual net cash flows in part (a).

c.

To determine

Recommend whether Company S should invest in the equipment based upon parts (a) and (b).

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Answer 3

Question

Chapter 12, Problem 2MAD

a.

To determine

Compute the expected value of the annual net cash flows.

b.

To determine

Compute the net present value of the equipment, assuming 10% desired rate of return for the given annual net cash flows in part (a).

c.

To determine

Recommend whether Company S should invest in the equipment based upon parts (a) and (b).

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Answer 4

Question

Chapter 12, Problem 2MAD

a.

To determine

Compute the expected value of the annual net cash flows.

b.

To determine

Compute the net present value of the equipment, assuming 10% desired rate of return for the given annual net cash flows in part (a).

c.

To determine

Recommend whether Company S should invest in the equipment based upon parts (a) and (b).

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Answer 5

Chapter 12, Problem 2MAD

a.

To determine

Compute the expected value of the annual net cash flows.

b.

To determine

Compute the net present value of the equipment, assuming 10% desired rate of return for the given annual net cash flows in part (a).

c.

To determine

Recommend whether Company S should invest in the equipment based upon parts (a) and (b).

Answer 6

Chapter 12, Problem 2MAD

a.

To determine

Compute the expected value of the annual net cash flows.

Answer 7

Chapter 12, Problem 2MAD

a.

To determine

Compute the expected value of the annual net cash flows.

Answer 8

b.

To determine

Compute the net present value of the equipment, assuming 10% desired rate of return for the given annual net cash flows in part (a).

Answer 9

b.

To determine

Compute the net present value of the equipment, assuming 10% desired rate of return for the given annual net cash flows in part (a).

Answer 10

c.

To determine

Recommend whether Company S should invest in the equipment based upon parts (a) and (b).

Answer 11

c.

To determine

Recommend whether Company S should invest in the equipment based upon parts (a) and (b).

Answer 12

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Answer 13

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Answer 14

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Answer 15

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Compute the expected value of the annual net cash flows .

Solution Summary: The author calculates the expected value of the annual net cash flows, assuming 10% desired rate of return.

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Compute the expected value of the annual net cash flows.

Compute the net present value of the equipment, assuming 10% desired rate of return for the given annual net cash flows in part (a).

Recommend whether Company S should invest in the equipment based upon parts (a) and (b).

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Chapter 12 Solutions