MANAGERIAL ACCOUNTING F/MGRS.
5th Edition
ISBN: 9781259969485
Author: Noreen
Publisher: RENT MCG
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Chapter 7A, Problem 7A.1E
To determine
Concept Introduction:
The
the present value of cash inflows for each investment.
Expert Solution & Answer
Answer to Problem 7A.1E
The present value of cash inflows for each investment is as follows:
Investment A =$ 18,519
Investment B =$ 21,832
Explanation of Solution
The present value of cash inflows for each investment is calculated as follows:
| Investment A | Investment B | |||||
| PVF (18%) | PV | Cash inflow | PV | |||
| A | B | C=A*B | D | E=A*D | ||
| Year 1 | 0.84746 | $ 3,000 | $ 2,542 | $ 12,000 | $ 10,169 | |
| Year 2 | 0.71818 | $ 6,000 | $ 4,309 | $ 9,000 | $ 6,464 | |
| Year 3 | 0.60863 | $ 9,000 | $ 5,478 | $ 6,000 | $ 3,652 | |
| Year 4 | 0.51579 | $ 12,000 | $ 6,189 | $ 3,000 | $ 1,547 | |
| Present value of cash inflow | $ 18,519 | $ 21,832 | ||||
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Students have asked these similar questions
Annual cash inflows from two competing investment opportunities aregiven. Each investment opportunity will require the same initial investment.Year AInvestmentB123$10,00013,000$39,00016,000$13,000$13,00013,000$39,000Requirement1. Assuming a 12% interest rate, which investment opportunity would you choose?
17. Consider the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)0 −$291,000 −$41,6001 37,000 20,0002 55,000 17,6003 55,000 17,2004 366,000 14,000
a) What is the Internal Rate of Return (IRR) for each of these projects? b) Using the IRR decision rule, which project should the company accept? c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects? d) Using the NPV decision rule, which project should the company accept? e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?
6.Wainright Co. has identified an investment project with the following cash flows.
Year
Cash Flow
1
$
720
2
930
3
1,190
4
1,275
If the discount rate is 10 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Present value
$
What is the present value at 18 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Present value
$
What is the present value at 24 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Present value
$
Chapter 7A Solutions
MANAGERIAL ACCOUNTING F/MGRS.
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- EQUIVALENT ANNUAL ANNUITY A firm has two mutually exclusive investment projects to evaluate; both can be repeated indefinitely. The projects have the following cash flows: Time Cash Flow X Cash Flow Y 0 100,000 70,000 1 30,000 30,000 2 50,000 30,000 3 70,000 30,000 4 30,000 5 10,000 Projects X and Y are equally risky and may be repeated indefinitely. If the firms WACC is 12%, what is the EAA of the project that adds the most value to the firm? (Round your final answer to the nearest whole dollar.)arrow_forwardEQUIVALENT ANNUAL ANNUITY A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows: Time Cash Flow X Cash Flow Y 0 (80,000) (75,000) 1 40,000 35,000 2 60,000 35,000 3 70,000 35,000 4 _ 35,000 5 _ 5,000 Projects X and Y are equally risky and may be repeated indefinitely. If the firms WACC is 10%, what is the EAA of the project that adds the most value to the firm? (Round your final answer to the nearest whole dollar.)arrow_forwardCAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S requires an initial outlay at t = 0 of 17,000, and its expected cash flows would be 5,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of 30,000, and its expected cash flows would be 8,750 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend? Explain.arrow_forward
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