FINANCIAL ACCOUNTING:TOOLS FOR BUSINESS
19th Edition
ISBN: 9781119493624
Author: Kimmel
Publisher: WILEY
expand_more
expand_more
format_list_bulleted
Question
Chapter AG, Problem G.9BE
To determine
Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value. The present value of an amount is calculated by using the following formula:
To determine: The amount that Company M should pay for the investment to earn an 8% return.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A company is considering an investment expected to yield $70,000 after six years. If this company demands an 8% return, how much is it willing to pay for this investment today?
Oriole Company is considering an investment that will return a lump sum of $879,000 3 years from now.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
What amount should Oriole Company pay for this investment to earn an 9% return? (Round answer to 2 decimal places, e.g. 25.25.)
Lincoln Company should pay
$
Zencorp is considering buying a $220,000 production machine. It would be depreciated (simplified straight line) for
10 years. This investment would allow the firm to increase sales by $130,000 per year. Operating expenses would
increase by $80,000 per year also. The corporate tax rate is 21%. What is the annual cash flow for the project?
O $75,720
O $44,120
O $170,520
O $71,100
O $53,720
Chapter AG Solutions
FINANCIAL ACCOUNTING:TOOLS FOR BUSINESS
Knowledge Booster
Similar questions
- Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?arrow_forwardCullumber Company is considering an investment that will return a lump sum of $830,000 6 years from now. Click here to view the factor table. What amount should Cullumber Company pay for this investment to earn an 12% return? (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to 2 decimal places, e.g. 25.25.) Cullumber Company should pay eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answerarrow_forwardPharoah Company is considering an investment that will return a lump sum of $931,000 4 years from now. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What amount should Pharoah Company pay for this investment to earn an 8% return? (Round answer to 2 decimal places, eg. 25.25.) Lincoln Company should pay $ 684,974.46arrow_forward
- Company ABC invests in a long-term project that will start generating cash flows 10 years from now (and will then continue generating cash flows forever). The first cash flow is going to be equal to $22 million. Cash flows will then grow 2% per year forever. If the project costs $460 million today, is it a good investment if interest rates are (and are going to be forever) equal to 5%?arrow_forwardJTG Instruments is considering an investment of $500,000 in a new product line. The company will make the investment only if it will result in a rate of return of 15% per year or higher. If the revenue is expected to be between $135,000 and $165,000per year for 5 years, determine if the decision to invest is sensitive to the projected range of income using a present worth analysisarrow_forwardJBL Inc. is considering a new product that would require an after-tax investment of $1,400,000 at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $ 650,000 at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $100,000 per year. There is a 70% probability that the market will be good. JBL Inc. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows-only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $108, 226.89 b. $ 137, 743.32 c. $167, 259.75 d. $196, 776.18 e. $216, 453.79arrow_forward
- A company is considering an investment that will cost $759,000 and have a useful life of 6 years. The cash flows from the project are expected to be $450,000 per year in the first two years then $170,000 per year for the last 4 years. If the appropriate discount rate is 16.0 percent per annum, what is the NPV of this investment (to the nearest dollar)? Select one: O a. $316870 O b. $321617 O c. $1834870 O d. $439045arrow_forwardConsider a project with an initial investment (today, t = 0) of $200,975. This project will generate cash flows of $49,500 per year for the next 8 years, at which time (end of Year 8) the company will pay $50,000 to another for clean-up and disposal. What is the Profitability Index (PI) of the project if shareholders demand a 16.295% return? Answer with a number rounded to three decimal places, e.g., 4.0877% should be entered as 4.088.arrow_forwardGTO Inc. is considering an investment costing $214,170 that results in net cash flows of $30,000 annually for 11 years. (a) What is the internal rate of return of this investment? (b) The hurdle rate is 9.5%. Should the company invest in this project on the basis of internal rate of return?arrow_forward
- Whispering Winds Company is considering an investment which will return a lump sum of $2,590,000 six years from now. What amount should Whispering Winds Company pay for this investment to earn an 11% return? (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to O decimal places, e.g. 5,275.) Click here to view the factor table. Amount pay for investment $arrow_forwardConsider a project with an initial investment (today, t = 0) of $225,000. This project will generate cash flows of $68,750 per year for the next 6 years. The company will pay $50,000 to another for clean-up and disposal in Year 6. What is the Profitability Index (PI) of the project if shareholders demand 8.25% return? Answer in whole numbers, rounded to three decimal places.arrow_forward| Frontier Corp. is considering a new product that would require an after-tax investment of $1,400,000 at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $650,000 at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $100,000 per year. There is a 70% probability that the market will be good. Tsai Corp. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows-only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $108,226.89 b. $137,743.32 c. $167,259.75 d. $196,776.18 e. $216,453.79arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College