Company XYZ has developed the concept of a new product, from preliminary budgetary estimate to final design ready for implementation. The development has required an initial investment at the beginning of the activity, which lasted six months before implementation and beginning of production. At completion of implementation and beginning of production the CEO wants to estimate the expected PV of the investment, he/she has the following data:

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Company XYZ has developed the concept of a new product, from
preliminary budgetary estimate to final design ready for implementation.
The development has required an initial investment at the beginning of
the activity, which lasted six months before implementation and
beginning of production.
At completion of implementation and beginning of production the CEO
wants to estimate the expected PV of the investment, he/she has the
following data:
• Capital for development
P1 = $30,000
Development period
0.5 years
Capital for Implementation
P2 = $2,000,000
%3D
Anticipated sales revenues
$20,000
Ar = $250,000/yr
plus Gr =
Anticipated 0&M cost
$2,000
A om= $25,000/yr
plus G om =
Project Life
15 years
Salvage Value
F = 20% of invested capital
%3D
• Worth of Capital availability for the Company
i= 7.35%
QUESTIONS:
1) Draw the Cash Flow Diagram of this investment.
2) Write the expression for deriving PV using generic i and n. Assume the
beginning of production as the reference period.
Transcribed Image Text:Company XYZ has developed the concept of a new product, from preliminary budgetary estimate to final design ready for implementation. The development has required an initial investment at the beginning of the activity, which lasted six months before implementation and beginning of production. At completion of implementation and beginning of production the CEO wants to estimate the expected PV of the investment, he/she has the following data: • Capital for development P1 = $30,000 Development period 0.5 years Capital for Implementation P2 = $2,000,000 %3D Anticipated sales revenues $20,000 Ar = $250,000/yr plus Gr = Anticipated 0&M cost $2,000 A om= $25,000/yr plus G om = Project Life 15 years Salvage Value F = 20% of invested capital %3D • Worth of Capital availability for the Company i= 7.35% QUESTIONS: 1) Draw the Cash Flow Diagram of this investment. 2) Write the expression for deriving PV using generic i and n. Assume the beginning of production as the reference period.
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