EBK CORNERSTONES OF COST MANAGEMENT
3rd Edition
ISBN: 8220100474972
Author: MOWEN
Publisher: CENGAGE L
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Chapter 19, Problem 19E
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Boseman Department Store is considering the purchase of a new machine at a cost of $22,802. The machine will provide $3,500 per year in cash flow for nine years. Boseman has a cost of capital of 10%. (Round discount factor to five decimal places.) Based on the internal control method, should this project be undertaken? A partial table of the present value of an annuity of $1 in arrears is as follows:
Year
1%
3%
5%
7%
9%
11%
13%
15%
9
8.56602
7.78611
7.10782
6.51523
5.99525
5.5370
5.1317
4.7716
What is the internal rate of return for this investment? (Round discount factor to five decimal places.)
The Sampson Company is considering a project that requires an initial outlay of $75,000 and produces cash inflows of $20,806 each year for five years. Sampson's cost of capital is 10%.
Calculate the project's IRR recognizing the fact that the cash inflows are an annuity. Is the project acceptable? Did your calculation in this part result in any number(s) that were also calculated in part a? What is it about this problem that creates this similarity? Will this always happen in such cases?
What is the project's NPV? Is it acceptable according to NPV rules?
L& T Corporation is considering an investment proposal in which a working capital investment of $15,000 would be required. The investment would provide cash inflows of $2,000 per year for six years. The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is closest to:
The PV factor for $1 annuity for six years at 10% is 4.355 and PV of $1 over 6 years at 10% is 0.564
A.
$6,290
B.
$(6,290)
C.
$3,000
D.
$2,170
Chapter 19 Solutions
EBK CORNERSTONES OF COST MANAGEMENT
Ch. 19 - Explain the difference between independent...Ch. 19 - Explain why the timing and quantity of cash flows...Ch. 19 - Prob. 3DQCh. 19 - Prob. 4DQCh. 19 - What is the accounting rate of return?Ch. 19 - What is the cost of capital? What role does it...Ch. 19 - Prob. 7DQCh. 19 - Explain how the NPV is used to determine whether a...Ch. 19 - Explain why NPV is generally preferred over IRR...Ch. 19 - Prob. 10DQ
Ch. 19 - Prob. 11DQCh. 19 - Prob. 12DQCh. 19 - Prob. 13DQCh. 19 - Prob. 14DQCh. 19 - Prob. 15DQCh. 19 - Jan Booth is considering investing in either a...Ch. 19 - Prob. 2CECh. 19 - Carsen Sorensen, controller of Thayn Company, just...Ch. 19 - Manzer Enterprises is considering two independent...Ch. 19 - Keating Hospital is considering two different...Ch. 19 - Prob. 6CECh. 19 - Prob. 7ECh. 19 - Prob. 8ECh. 19 - Each of the following scenarios is independent....Ch. 19 - Roberts Company is considering an investment in...Ch. 19 - NPV A clinic is considering the possibility of two...Ch. 19 - Refer to Exercise 19.11. 1. Compute the payback...Ch. 19 - Buena Vision Clinic is considering an investment...Ch. 19 - Consider each of the following independent cases....Ch. 19 - Gina Ripley, president of Dearing Company, is...Ch. 19 - Covington Pharmacies has decided to automate its...Ch. 19 - Postman Company is considering two independent...Ch. 19 - Prob. 18ECh. 19 - Prob. 19ECh. 19 - Prob. 20ECh. 19 - Prob. 21ECh. 19 - Prob. 22ECh. 19 - Prob. 23ECh. 19 - Prob. 24PCh. 19 - Prob. 25PCh. 19 - Prob. 26PCh. 19 - Kent Tessman, manager of a Dairy Products...Ch. 19 - Friedman Company is considering installing a new...Ch. 19 - Okmulgee Hospital (a large metropolitan for-profit...Ch. 19 - Mallette Manufacturing, Inc., produces washing...Ch. 19 - Prob. 31PCh. 19 - Prob. 32P
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