A certain property is being sold and the new owner received two bids.The first bidder offered to pay P400,000 each year for 5 years, eachpayment is to be made at the beginning of each year. The secondbidder offered to pay P240,000 first year, P360,000 the second andP540,000 each year the next 3 years, all payments will be made at thebeginning of each year. If money is worth 20% compounded annually,which bid should the owner of the property accept?

Present value (PV) is the current value of a future sum of money of cash flows given a specified…

Answered: A certain property is being sold and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A certain manufacturing plant is being sold and was submitted for bidding. Two bids were submitted by interested buyers. The first bid offered to pay P 200,000 each year for 5 years, each payment being made at the beginning of each year. The second bid offered to pay P 120,000 the first year, P 180,000 the second year, and P 270,000 each year for the next 3 years, all payments being made at the beginning of each year. If money is worth 12% compounded annually, which bid should the owner of the plant accept?
An entrepreneur is offered a service contract that will cost him $700,000 initially. The contract has a 5 years of life and will generate an after tax cash inflow of $180,000 per year. The cost of capital of this project is 12%. What’s the NPV of the project? Should the entrepreneur accept the contract? Group of answer choices $51,140; accept $68,418; accept $648,860; reject -$48,524; reject -$51,140; reject
Dickens Corp wants to buy a 100-acre tract of land. The owner will sell it for a cash price of $175,000, but Dickens offered to pay for the land in five annual installments of $40,000 each, the first one is due at the end of one year. Find the cost of capital for Dickens the two prices to be equivalent.
An air conditioning unit offers two oрtions to acquire the unit. A рartial рayment of Ρhр 2,000 and a monthly рayment of Ρhр 850 and 1.2% rate.The second is to give Ρhр 2,000 and рay four times at 1 % rate. Both offer is good for a year. Choose the best oрtions.
An entrepreneur is offered a service contract that will cost him $600,000 initially. The contract has a 5 years of life and will generate an after tax cash inflow of $150,000 per year. The cost of capital of this project is 13%. What’s the NPV of the project? Should the entrepreneur accept the contract? Group of answer choices -$72,415; reject $89,569; accept $72,415; accept -$70,179; reject $527,585; reject
Jack Toronto is the newly recruited financial analyst of Von Mining Company Ltd. He has been asked to analyze a proposal to acquire a drilling machine. He received the appropriation capital request. Von Mining Company can purchase the drilling machine for GH¢ 50,000. Von Mining Company Ltd can also lease the drilling machine for GH¢12,200 a year for a 5-year period from Trosky Leasing Ltd. The expected life of the machine is given as 5 years and expected to have a salvage value of GH¢5000 in 5 years’ time. The mining company intends to buy the drilling machine a fair market value at that time. If the mining company decides to buy the machine, it can acquire financing at 20%. It will cost the Mining Company GH¢6,000 in maintenance and insurance of the drilling machine. The tax rate is 34%. Assume depreciation is on straight line basis and lease rentals are tax deductible. (Assume payment is made at the end of the year) Required: a). Calculate NPV to Von Mining Company Ltd of the lease…
Michael Security has learned that a rival has offered to supply a parking garage with security for ten years for $45,000 up front and a further $15,000 per year. Michael Security offers to provide security for eight years for an upfront cost of $60,000 and a separate yearly payment. What should the yearly payment be so that Michael's offer matches the equivalent annual annuity of their rival's offer? (Assume a cost of capital of 5%.)

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