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Consider each of the following independent cases. Required: 1. Hal’s Stunt Company is investing $120,000 in a project that will yield a uniform series of cash inflows over the next four years. If the internal rate of return is 14 percent, how much cash inflow per year can be expected? 2. Warner Medical Clinic has decided to invest in some new blood diagnostic equipment. The equipment will have a three-year life and will produce a uniform series of cash savings. The net present value of the equipment is $1,750, using a discount rate of 8 percent. The internal rate of return is 12 percent. Determine the investment and the amount of cash savings realized each year. 3. A new lathe costing $60,096 will produce savings of $12,000 per year. How many years must the lathe last if an IRR of 18 percent is realized? 4. The NPV of a new product (a new brand of candy) is $6,075. The product has a life of four years and produces the following cash flows: The cost of the project is three times the cash flow produced in Year 4. The discount rate is 10 percent. Find the cost of the project and the cash flow for Year 4.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 19, Problem 14E
Textbook Problem
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Consider each of the following independent cases.

Required:

  1. 1. Hal’s Stunt Company is investing $120,000 in a project that will yield a uniform series of cash inflows over the next four years. If the internal rate of return is 14 percent, how much cash inflow per year can be expected?
  2. 2. Warner Medical Clinic has decided to invest in some new blood diagnostic equipment. The equipment will have a three-year life and will produce a uniform series of cash savings. The net present value of the equipment is $1,750, using a discount rate of 8 percent. The internal rate of return is 12 percent. Determine the investment and the amount of cash savings realized each year.
  3. 3. A new lathe costing $60,096 will produce savings of $12,000 per year. How many years must the lathe last if an IRR of 18 percent is realized?
  4. 4. The NPV of a new product (a new brand of candy) is $6,075. The product has a life of four years and produces the following cash flows:

Chapter 19, Problem 14E, Consider each of the following independent cases. Required: 1. Hals Stunt Company is investing

The cost of the project is three times the cash flow produced in Year 4. The discount rate is 10 percent. Find the cost of the project and the cash flow for Year 4.

1.

To determine

Ascertain the amount of cash inflow per year that could be expected.

Explanation of Solution

Cash inflows: The amount of cash received by a company from the operating, investing, and financing activities of the business during a certain period is referred to as cash inflow.

Ascertain the minimum amount of cash inflow per year:

Invested amount=Present value at 14%×Cash Flow$120,000=2

2.

To determine

Ascertain the original investment and the amount of cash savings realized each year.

3.

To determine

Indicate the number of years that the lathe would last, if an IRR of 18% is realized,

4.

To determine

Ascertain the cost of the project and the cash flow for Year 4.

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Chapter 19 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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