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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

The following data are accumulated by Wocester l-fat Company in evaluating the purchaseof $250,000 of equipment, having a four-year useful life with no residual value.

a. Assuming that the desired rate of return is 10%, determine the net present value for theproposal. Use the table of the present value of $1 appearing in Exhibit 2 of this chapter

b. Would management be likely to look with favor on the proposal? Explain.

To determine

Concept Introduction:

Capital budgeting is a technique to plan long term investment of funds in long term activities whose benefit released for several years.

Example: - Purchase of machineries, purchase of building for business purpose, setting of factories etc.

Net Present value refers to the difference between the present value of inflows and the present value of outflows associated with the projects.

Requirement-1:

To Calculate:

Net present value

Explanation

Net Present Value

Net present value = Present value of Inflows-Present value of Outflow

    Years(Cash Inflow)Present value of $1Discounted cash flow
    11,00,0000.909190909
    290,0000.826474380
    375,0000...
To determine

Concept Introduction:

Capital budgeting is a technique to plan long term investment of funds in long term activities whose benefit released for several years.

Example: - Purchase of machineries, purchase of building for business purpose, setting of factories etc.

Net Present value refers to the difference between the present value of inflows and the present value of outflows associated with the projects.

Requirement-2:

To Explain

Decision of Management

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