Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Chapter 9.M, Problem M.2.2P
To determine
Hedging:
Hedging against an investment risk is termed for strategically implementing the instruments and tools in the market to minimize the risk and effects of any adverse price movements. It can be said that investors are benefitted through hedging as they hedge one investment by making another investment.
The financial instruments like exchange traded funds, stocks, forward contracts, options, insurance, swaps, etc may construct hedge.
Future contracts:
A futures contract is generally an agreement of an asset for either buying or selling on an exchange that is publicly-traded at a decided price at specified time in future.
The identification of factors that cause future contracts not to be effective as compared to a hedge against changes in the price of flour used by CBBI.
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Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for their production systems. (Enter negative amounts using negative sign, e.g. -45.25. Round answers to 2 decimal places, e.g. 15.25.)
Year
System 1
System 2
0
-$12,400
-$43,000
1
12,400
32,600
2
12,400
32,600
3
12,400
32,600
Calculate NPV.
NPV of System 1 is $
and NPV of System 2 is $
.
Which system should the firm invest?
The firm should invest in
.system 1
system2
Alternative A: To buy Machine Audi which is similar to the existing machineAlternative B: Go in for Machine Benz which is more expensive and has much greater capacityThe cash flows at the present level of operations under the two alternatives are as follows:Year Machine Audi Machine Benz0 (30500) (32000)1 - 145002 9000 145003 19000 145004 16000 145005 14000 14500The company estimates that its cost of capital is 11%. At the end of year 5, Machine Audi will have a scrap value of $2500 which is not included in the table above. Machine Benz will not have any residual value.
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Alternative A: To buy Machine Audi which is similar to the existing machineAlternative B: Go in for Machine Benz which is more expensive and has much greater capacityThe cash flows at the present level of operations under the two alternatives are as follows:Year Machine Audi Machine Benz0 (30500) (32000)1 - 145002 9000 145003 19000. 145004 16000 145005 14000 14500The company estimates that its cost of capital is 11%. At the end of year 5, Machine Audi will have a scrap value of $2500 which is not included in the table above. Machine Benz will not have any residual value.
Calculate the payback period for both machines. (answers must be expressed in years, months and days)
(b) Calculate the discounted payback period for both machines (answers in years, months and days) (c) Calculate the net present value for both machines. (to the nearest dollar)
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(e) Calculate the Internal Rate of Return for…
Chapter 9 Solutions
Advanced Accounting
Ch. 9.M - Prob. 1UTICh. 9.M - Prob. 2UTICh. 9.M - Prob. 3UTICh. 9.M - Prob. 4UTICh. 9.M - Prob. 5UTICh. 9.M - Prob. 1ECh. 9.M - Prob. 2ECh. 9.M - Prob. 3ECh. 9.M - Prob. 4.1ECh. 9.M - Prob. 4.2E
Ch. 9.M - Prob. 4.3ECh. 9.M - Prob. 4.4ECh. 9.M - Prob. 4.5ECh. 9.M - Prob. 4.6ECh. 9.M - Prob. 5ECh. 9.M - Prob. 6.1ECh. 9.M - Prob. 6.2ECh. 9.M - Prob. 7ECh. 9.M - Prob. M.1.1PCh. 9.M - Prob. M.1.2PCh. 9.M - Prob. M.2.1PCh. 9.M - Prob. M.2.2PCh. 9.M - Prob. M.3PCh. 9.M - Prob. M.4.3PCh. 9.M - Prob. M.4.4PCh. 9.M - Prob. M.4.5PCh. 9.M - Prob. M.4.6PCh. 9.M - Prob. M.5PCh. 9.M - Prob. M.6PCh. 9.M - Prob. M.7.1PCh. 9.M - Prob. M.7.2PCh. 9.M - Prob. M.7.3PCh. 9 - Prob. 1UTICh. 9 - Prob. 2UTICh. 9 - Prob. 3UTICh. 9 - Prob. 1.1ECh. 9 - Prob. 1.2ECh. 9 - Exercise 2 (LO 3) The accounting issues associated...Ch. 9 - Prob. 3.1ECh. 9 - Prob. 3.2ECh. 9 - Prob. 3.3ECh. 9 - Prob. 4.1ECh. 9 - Prob. 4.2E
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