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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Net present value method and internal rate of return method

Wisconsin Healthcare Corp. is proposing to spend $3,810.000 on a project that has estimated net cash flows of $620.000 for each of the 10 years.

a. Compute the net present value, using a rate of return of 12%. Use the table of presentvalues of an annuity of $1 in the chapter.

b. Based on the analysis prepared in part (a), is the rate of return (1) more than 12%,(2) 12%, or (3) less than 12%? Explain.

c. Determine the internal rate of return by computing a present value factor for an annuityof $1 and using the table of the present value of an annuity of $1 presented in the text.

To determine

(a)

Concept introduction:

Net present value method:

It is a method of determining the present value of cash flows over the period by the multiplying the cash flows with the discounting factor of the required rate.

To compute:

The net present value of this project.

Explanation

           W. H. Corp.

    ParticularsAmount
    Cash inflow   (110 years)  $620,000
    Annuity factor at   12%  5

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