Falkland, Inc., is considering the purchase of a patent that has a cost of $49,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 10%. The patent is expected to generate the following amounts of annual income and cash flows: Year 1 Year 2 Year 3 Year 4 Net income $5,100 $6,500 Operating cash flows 17,300 18,400 (Click here to see present value and future value tables) A. What is the NPV of the investment? Round your present value factor to three decimal places and final answer to the nearest dollar. 5,504 X $6,300 18,500 B. What happens if the required rate of return increases? If the required rate of return increases, the NPV will be lower Feedback $3,000 14,850 ✓
Falkland, Inc., is considering the purchase of a patent that has a cost of $49,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 10%. The patent is expected to generate the following amounts of annual income and cash flows: Year 1 Year 2 Year 3 Year 4 Net income $5,100 $6,500 Operating cash flows 17,300 18,400 (Click here to see present value and future value tables) A. What is the NPV of the investment? Round your present value factor to three decimal places and final answer to the nearest dollar. 5,504 X $6,300 18,500 B. What happens if the required rate of return increases? If the required rate of return increases, the NPV will be lower Feedback $3,000 14,850 ✓
Chapter4: Preparing And Using Financial Statements
Section: Chapter Questions
Problem 16DQ
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Transcribed Image Text:ilrn/takeAssignment/takeAssignment Main.do?invoker=&takeAssignmentSession Locator=&inprogress=false
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eBook
Net income
Falkland, Inc., is considering the purchase of a patent that has a cost of $49,000 and an estimated revenue producing life of 4 years. Falkland has a cost of
capital of 10%. The patent is expected to generate the following amounts of annual income and cash flows:
5
5,504 X
Feedback
Year 1
$5,100
$6,500
Operating cash flows
17,300 18,400
(Click here to see present value and future value tables)
A. What is the NPV of the investment? Round your present value factor to three decimal places and final answer to the nearest dollar.
Check My Work
Year 2
B. What happens if the required rate of return increases?
If the required rate of return increases, the NPV will be lower
2
Year 3
GO A
Year 4
$6,300
$3,000
18,500 14,850
mer
✓.
Discount the operating cash flows in accordance to the years they occur using the appropriate time value of money table. The total amount of all
cash flows represents the net present value. What does this amount represent?
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5
Transcribed Image Text:ion
Period (n)
123456
9
10
11
12 13 14 15 16
1%
2%
3%
8%
10%
12%
15%
0.990
0.980 0.971
0.926
0.909 0.893
0.870
2 0.980
0.961 0.943
0.907
0.857
0.826 0.797
0.756
0.942 0.915
0.864
0.794
0.751 0.712
0.658
3 0.971
4 0.961
0.735 0.683
0.572
0.924
0.853
0.914
0.837
0.924 0.888 0.823
0.636
0.952 0.906 0.863 0.784 0.681 0.621 0.567 0.497
0.942 0.888 0.837 0.746 0.630 0.564 0.507 0.432
0.933 0.871 0.813 0.711 0.583 0.513 0.452 0.376
0.789 0.677 0.540 0.467 0.404 0.327
0.766 0.645 0.500 0.424 0.361 0.284
0.744 0.614
0.722 0.585 0.429
0.701 0.557 0.397
0.681 0.530 0.368
0.661 0.505 0.340
0.481 0.315 0.239 0.183 0.123
0.905
0.820
0.896
0.804
0.463 0.386 0.322 0.247
0.350 0.287 0.215
0.319 0.257 0.187
0.888 0.788
0.290 0.229
0.163
0.879 0.773
0.861 0.758
15 0.861 0.743
0.263 0.205 0.141
0.642
0.623
0.458
0.292 0.218
0.163 0.107
16 0.853 0.728
0.844 0.714
0.146 0.093
0.836 0.700
0.828 0.686
0.673
0.605 0.436
0.587 0.416 0.250
0.570 0.396 0.232
0.554 0.377 0.215
0.270 0.198
0.180
0.164 0.116
0.130 0.081
0.070
0.149 0.104
17
18
19
20
arch this bOOK
0.8200
Figure B1 Present Value of $1 Table.
Present Value of $1 Table
1
(1 + i)"
Factor =
ܐ
5%
Rate (i)
0.952
Q
18
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
Suure
0.233
0.194
0.162
0.135
0.112
0.093
0.078
0.065
0.054
0.045
0.038
0.031
0.061 0.026
AA
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