Survey of Accounting (Accounting I)
8th Edition
ISBN: 9781305961883
Author: Carl Warren
Publisher: Cengage Learning
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Question
Chapter 15, Problem 15.4.1P
To determine
Concept Introduction:
NPV:
To Calculate:
The Net Present Value for each project
Expert Solution
Answer to Problem 15.4.1P
The Net Present value for each project for each project is as follows:
| Net Present Value | |
| Radio Station | $ 176,325 |
| TV Station | $ 148,809 |
Explanation of Solution
The Net Present value for each project is calculated as follows:
| Radio Station | Amount | PVF (10%) | PV |
| A | B | =A*B | |
| Annual Net Cash Flows | |||
| Year 1 | $ 560,000 | 0.90909 | $ 509,091 |
| Year 2 | $ 560,000 | 0.82645 | $ 462,810 |
| Year 3 | $ 560,000 | 0.75131 | $ 420,736 |
| Year 4 | $ 560,000 | 0.68301 | $ 382,488 |
| Present Value of | $ 1,775,125 | ||
| Investment (B) | $ 1,598,800 | 1.00000 | $ 1,598,800 |
| Net Present Value (A-B) | $ 176,325 | ||
| TV Station | Amount | PVF (20%) | PV |
| A | B | =A*B | |
| Annual Net Cash Flows | |||
| Year 1 | $ 1,120,000 | 0.90909 | $ 1,018,182 |
| Year 2 | $ 1,120,000 | 0.82645 | $ 925,620 |
| Year 3 | $ 1,120,000 | 0.75131 | $ 841,473 |
| Year 4 | $ 1,120,000 | 0.68301 | $ 764,975 |
| Present Value of Cash Inflow (A) | $ 3,550,249 | ||
| Investment (B) | $ 3,401,440 | 1.00000 | $ 3,401,440 |
| Net Present Value (A-B) | $ 148,809 |
To determine
Concept Introduction:
NPV:
Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:
To Calculate:
The Present Value Index for each project
Expert Solution
Answer to Problem 15.4.1P
The Present Value Index for each project is as follows:
| Present Value Index | |
| Radio Station | 1.11 |
| TV Station | 1.04 |
Explanation of Solution
The Present Value Index for each project is calculated as follows:
| Radio Station | Amount | PVF (10%) | PV |
| A | B | =A*B | |
| Annual Net Cash Flows | |||
| Year 1 | $ 560,000 | 0.90909 | $ 509,091 |
| Year 2 | $ 560,000 | 0.82645 | $ 462,810 |
| Year 3 | $ 560,000 | 0.75131 | $ 420,736 |
| Year 4 | $ 560,000 | 0.68301 | $ 382,488 |
| Present Value of Cash Inflow (A) | $ 1,775,125 | ||
| Investment (B) | $ 1,598,800 | 1.00000 | $ 1,598,800 |
| Present Value Index (A/B) | 1.11 | ||
| TV Station | Amount | PVF (20%) | PV |
| A | B | =A*B | |
| Annual Net Cash Flows | |||
| Year 1 | $ 1,120,000 | 0.90909 | $ 1,018,182 |
| Year 2 | $ 1,120,000 | 0.82645 | $ 925,620 |
| Year 3 | $ 1,120,000 | 0.75131 | $ 841,473 |
| Year 4 | $ 1,120,000 | 0.68301 | $ 764,975 |
| Present Value of Cash Inflow (A) | $ 3,550,249 | ||
| Investment (B) | $ 3,401,440 | 1.00000 | $ 3,401,440 |
| Present Value Index (A/B) | 1.04 |
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Chapter 15 Solutions
Survey of Accounting (Accounting I)
Ch. 15 - Prob. 1SEQCh. 15 - Management is considering a $100,000 investmentin...Ch. 15 - The expected period of time that will elapse...Ch. 15 - A project that will cost $120,000 is estimated to...Ch. 15 - Prob. 5SEQCh. 15 - What are the principal objections to the use 01the...Ch. 15 - Discuss the principal limitations of the cash...Ch. 15 - Prob. 3CDQCh. 15 - Prob. 4CDQCh. 15 - Prob. 5CDQ
Ch. 15 - Prob. 6CDQCh. 15 - Prob. 7CDQCh. 15 - Prob. 8CDQCh. 15 - Prob. 9CDQCh. 15 - Prob. 10CDQCh. 15 - Prob. 11CDQCh. 15 - Prob. 12CDQCh. 15 - Prob. 13CDQCh. 15 - Prob. 14CDQCh. 15 - Prob. 15CDQCh. 15 - Monsanto Company, a large chemical and...Ch. 15 - Average rate of return The following data are...Ch. 15 - Prob. 15.2ECh. 15 - Average rate of return—new product Arrowhead Inc....Ch. 15 - Calculate cash flows Daffodil Inc. is planning to...Ch. 15 - Prob. 15.5ECh. 15 - Cash payback method Bliss Beauty Products ¡s...Ch. 15 - Prob. 15.7ECh. 15 - Prob. 15.8ECh. 15 - Net present value method—annuity Model 99 Hotels...Ch. 15 - Prob. 15.10ECh. 15 - Prob. 15.11ECh. 15 - Prob. 15.12ECh. 15 - Prob. 15.13ECh. 15 - Average rate of return, cash payback period, net...Ch. 15 - Prob. 15.15ECh. 15 - Internal rate of return method The internal rate...Ch. 15 - Prob. 15.17ECh. 15 - Internal rate of return method—two projects Strahn...Ch. 15 - Prob. 15.19ECh. 15 - Prob. 15.20ECh. 15 - Prob. 15.21ECh. 15 - Prob. 15.22ECh. 15 - Average rate of return method, net present value...Ch. 15 - Average rate of return method, net present value...Ch. 15 - Prob. 15.2.1PCh. 15 - Cash payback period, net present value method, and...Ch. 15 - Prob. 15.3.1PCh. 15 - Prob. 15.3.2PCh. 15 - Prob. 15.3.3PCh. 15 - Prob. 15.4.1PCh. 15 - Prob. 15.4.2PCh. 15 - Prob. 15.4.3PCh. 15 - Prob. 15.5.1PCh. 15 - Prob. 15.5.2PCh. 15 - Prob. 15.5.3PCh. 15 - Prob. 15.6.1PCh. 15 - Prob. 15.6.2PCh. 15 - Prob. 15.6.3PCh. 15 - Prob. 15.6.4PCh. 15 - Capital rationing decision involving four...Ch. 15 - Prob. 15.6.6PCh. 15 - Prob. 15.6.7PCh. 15 - Prob. 15.6.8PCh. 15 - Prob. 15.1.1MBACh. 15 - Prob. 15.1.2MBACh. 15 - Financial leverage MicrosoCortrepotied (MSFT)...Ch. 15 - Prob. 15.1.4MBACh. 15 - Prob. 15.2.1MBACh. 15 - Prob. 15.2.2MBACh. 15 - Prob. 15.2.3MBACh. 15 - Prob. 15.3.1MBACh. 15 - Prob. 15.3.2MBACh. 15 - Prob. 15.3.3MBACh. 15 - Prob. 15.4MBACh. 15 - Prob. 15.5.1MBACh. 15 - Financial leverage Costco Wholesale Corporation...Ch. 15 - Prob. 15.5.3MBACh. 15 - Prob. 15.5.4MBACh. 15 - Ethics and professional conduct in business Erin...Ch. 15 - Prob. 15.2.1CCh. 15 - Prob. 15.2.2CCh. 15 - Prob. 15.2.3CCh. 15 - Prob. 15.3.1CCh. 15 - Prob. 15.3.2CCh. 15 - Qualitative issues in investment analysis The...Ch. 15 - Prob. 15.5.1CCh. 15 - Prob. 15.5.2CCh. 15 - Prob. 15.6C
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