Falkland, Inc., is considering the purchase of a patent that has a cost of $51,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: Year 1 Year 3 Net income Year 2 $5,100 $6,500 $6,300 17,250 18,550 18,050 Year 4 B. What happens if the required rate of return increases? If the required rate of return increases, the NPV will be lower $3,000 14,700 Operating cash flows (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.

Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 5PA: Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated...
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CH11 Q6

Falkland, Inc., is considering the purchase of a patent that has a cost of $51,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is
expected to generate the following amounts of annual income and cash flows:
Year 1
Year 2
Net income
Year 3
$6,300
18,050
$5,100
$6,500
Operating cash flows
17,250
18,550
(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.
Year 4
B. What happens if the required rate of return increases?
If the required rate of return increases, the NPV will be lower
$3,000
14,700
✓.
Transcribed Image Text:Falkland, Inc., is considering the purchase of a patent that has a cost of $51,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: Year 1 Year 2 Net income Year 3 $6,300 18,050 $5,100 $6,500 Operating cash flows 17,250 18,550 (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. Year 4 B. What happens if the required rate of return increases? If the required rate of return increases, the NPV will be lower $3,000 14,700 ✓.
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