Anthony operates a part time auto repair service. He estimates that a new diagnostic computer system will result in increased cashinflows of $1,500 in Year 1, $2,100 in Year 2, and $3,200 in Year 3. If Anthony's required rate of return is 10%, then the most hewould be willing to pay for the new diagnostic computer system would be (Ignore income taxes.):Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.Multiple Choice$4,599$5,501$5,638

Lets understand the basics.Maximum payment that can be generally make for purchase of asset would be…

Answered: Anthony operates a part time auto…

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 commercial real estate developer plans to borrow money to finance an upscale mall in an exclusive area of the city. The developer plans to get a loan that will be repaid with uniform payments of $300,000 beginning in year 2 and ending in year 16. How much will a bank be willing to loan at an interest rate of 13% per year? The bank will be willing to loan the developer a sum of $
Jerry owns a restaurant and has the opportunity to buy a high-quality espresso coffee machine for $5,000. After carefully studying projected costs and revenues, Jerry estimates that the machine will produce a net cash flow of $1,600 annually and will last for five years. He determines that an interest rate of 10% is an adequate return on investment for his business. Calculate the present value of the machine to Jerry. Based on your calculation, do you think a decision to purchase the machine would be wise?
Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,530 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $6,070 and $850, respectively.Alternatively, Mr. Fitch could purchase for $9,960 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,440 and $2,350, respectively.Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.Required Determine the payback period and unadjusted rate of return (use average investment) for each…
what is the annual after tax operating cash flow for year 5 and also calculate the Net Present Value (NPV) and Internal Rate of Return (IRR) of this venture for the scenario below: Having assessed the changing dietary needs of your town, you are considering investing in a new Italian restaurant which you plan to name Italian Valley Incorporated. You plan to use a building currently owned by your family, however there will be need for some renovation and improvements to the property. Your parents have said that you can use the retail space in any way you wish for free. After checking on local lease rates you determine this space would lease for $75,500 per year. Your family also owns another restaurant downtown. Youpredict that your new one will decrease its revenues by $15,000 per year. Your parents tell you that this sum will be taken from your annual family stipend.Some of the major improvements to the property include the purchase of cooking equipment,building a stage, seating, and…
Suppose a husband wants to take his wife on a trip three years from now to Europe to celebrate their 40th anniversary. He has just received a $20,000 inheritance from an uncle and intends to invest it for the trip. The husband estimates the trip will cost $26,600. What interest rate, compounded annually, must be earned to accumulate enough to pay for the trip? Note: Use tables, Excel, or a financial calculator
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $38,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $9,500. The grill will have no effect on revenues but will save Johnny's $19,000 in energy expenses. The tax rate is 30%. Required: What are the operating cash flows in each year? What are the total cash flows in each year? Assuming the discount rate is 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? (round answers to 2 decimal places)
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Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,980 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $6,010 and $840, respectively. Alternatively, Mr. Fitch could purchase for $9,960 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,380 and $2,400, respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent. Required a. Determine the payback period and unadjusted rate of return (use average investment) for each…
Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $42,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $10,500. The grill will have no effect on revenues but will save Johnny’s $21,000 in energy expenses. The tax rate is 30%. Required: a. What are the operating cash flows in each year?b. What are the total cash flows in each year?c. Assuming the discount rate is 10%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

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