Active Parent manufactures baby furniture, clothing, strollers, and accessories. In the current year the company plans on purchasing a new machine to improve the quality and efficiency of production. Active Parent has prepared estimates of future cash flows overthe following four years, at which point it will sell the machine for $14,000. The company focuses on tax minimization and calculated depreciation over the four years using the straight-line method, a useful life of four years, and a residual value of $0.View the future cash flows.View the present value of $1 table.Read the requirements.View the present value of annuity of $1 table.Requirement 1. Calculate the net present value of the investment. (Use parentheses or a minus sign for a negative net present value. Round your answer to the nearest whole dollar.)Net present value of the investment:-Present Value of Annuity of $1 TableFuture Cash FlowsPeriods 2%Period 1 0.980Present Value of Annuity of $1.00 in Arrears*4%6%8% 10% 12% 14%0.962 0.943 0.926 0.909 0.893 0.87716%0.862 0.84718% 20% Per0.833 PeRelevant Cash Flows at End of Each yearPeriod 2 1.9421.886 1.833 1.783 1.736 1.690 1.647 1.605 1.5661.528 PeToday1234Period 3 2.884Initial investment$ (216,000)2.775 2.673 2.577 2.4872.402 2.3222.246 2.1742.106 PeAnnual cash flows from$ 32,000 $ 32,000 $ 32,000 $ 32,000Period 4 3.8083.630 3.465 3.3123.170 3.0372.914 2.798 2.6902.589 Peoperations (excludingdepreciation)Cash flow from sale of machinePeriod 5 4.7134.452 4.212 3.993 3.7913.605 3.4333.274 3.127 2.991 Pe14,000Period 6 5.6015.242 4.917 4.623 4.355 4.1113.8893.6853.498 3.326 PeRequired return on investmentIncome tax rateDepreciation method10%35%straight-linePeriod 7 6.4726.0025.582 5.2064.8684.564 4.2884.0393.812 3.605 PePeriod 8 7.3256.733 6.210 5.747 5.335 4.9684.639 4.344 4.078 3.837 PeCCA rate declining balance for income tax purposes 20%All CF occur at end of year except for the initial investment.Period 9 8.1627.4356.802 6.247 5.759 5.3284.946 4.607 4.303 4.031 PePeriod 10 8.9838.111 7.3606.710 6.145 5.6505.216 4.833 4.494 4.192 PePeriod 11 9.7878.760 7.887 7.139 6.495 5.9385.453 5.029 4.656 4.327 PePrintDonePeriod 12 10.5759.3858.384 7.5366.814 6.1945.660 5.197 4.793 4.439Pe1Period 13 11.3489.986 8.8537.9047.103 6.4245.842 5.342 4.910 4.533 PePeriod 14 12.106 10.563 9.2958.244 7.367 6.628 6.002 5.468 5.008 4.611 Pe☑

Net present value (NPV):The NPV considers both the timing and magnitude of cash inflows and…

Answered: Future Cash Flows Initial investment…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Ranking roposals: Presented is information pertaining to the cash flows of three mutually exclusive investment proposals: Proposal A Proposal B $ 60,000 $ 60,000 Initial investment Cash flow from operations Year 1 Year 2 Year 3 Disinvestment Life (years) 50,000 6,000 29,000 0 3 years 30,000 30,000 25,000 0 3 years Payback period (years): Round answers 2 decimal places. Proposal C $ 60,000 Accounting rate of return; Round answers to 4 decimal places. 60,000 • Round payback period (years) to two decimal places. • Round accounting rate of return to four decimal places. • Round net present value to the nearest whole number. • Use negative signs with your answers, when appropriate. Net present value; Round answers to neare whole number. 0 1 year (a) Select the best investment proposal using the payback period, the accounting rate of return on initial investment, and the net present value criteria. Assume that the organization's cost of capital is 12 percent. Rate of Proposal A 2.14 13.8888…
MACRS RATE Recovery year 3 years 5 years 7 years 10 years 33% 20% 14% 10% 45 32 25 18 3 15 19 18 14 4 7 12 12 12 12 5 9 8 7 9 7 8 4. 6 9. 6 10 6 11 4 A corporation is evaluating the relevant cash flows for a capital budgeting decision and must estimate the terminal cash flow. The proposed machine will be disposed of at the end of its usable life of five years at an estimated sale price of $15,000. The machine has an original purchase price of $80,000, installation cost of $20,000, and will be depreciated under the five - year MACRS. Net working capital is expected to decline by $5,000. The firm has a 40 percent tax rate on ordinary income and long - term capital gain. The terminal cash flow is O A. $24,000 O B. $26.000 O C. $14,000 O D. $16,000
Internal Rate of Return Method The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal that involves an investment of $51,629 and annual net cash flows of $17,000 for each of the four years of its useful life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 4.917 4.355 4.111 3.785 3.326 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9. 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine a present value factor for an annuity of $1 which can be used in determining the internal rate of return. If required, round your answer to three decimal places. b. Using the factor determined in part (a) and the present value of an annuity of $1 table above, determine the internal rate of return for the proposal. %
Relevant Cash Flow Data for Year 2:Sales revenues Year 2 $100,000Cost of Goods Sold 20,000Depreciation Expense 10,000Tax Rate 40% Based on the above cash flow data: What is the operating cash flow for year two of this capital budgeting project? A.130,000 B.52,000 C.42,000 D. 78,000
Income from Net Cash Year Operations Flow $100,000 $180,000 2 40,000 120,000 40,000 100,000 10,000 90,000 10,000 120,000 The net present value for this investment is 4, 5.
Internal Rate of Return Method The internal rate of return method is used by King Bros. Construction Co. in analyzing a capital expenditure proposal that involves an investment of $89,424 and annual net cash flows of $18,000 for each of the eight years of its useful life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.352 2.991 6. 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9. 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine a present value factor for an annuity of $1 which can be used in determining the internal rate of return. If required, round your answer to three decimal places. b. Using the factor determined in part (a) and the present value of an annuity of $1 table above, determine the internal rate of return for the…
Internal Rate of Return Method for a Service Company The Riverton Company, announced a $645,535 million expansion of lodging properties, ski lifts, and terrain in Park City, Utah. Assume that this investment is estim produce $121,000 million in equal annual cash flows for each of the first eight years of the project life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.353 2.991 6. 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine the expected internal rate of return of this project for eight years, using the present value of an annuity of $1 table above. % b. Identify the uncertainties that could reduce the internal rate of return of this project? 1.
8. Assume a $90,000 investment and the following cash flows for two alternatives: Year 1 2 3 4 5 Investment Investment A B $25,000 30,000 25,000 19,000 25,000 $40,000 40,000 28,000 a. Calculate the payback for Investments A and B. b. If the inflow in the fifth year for Investment A was $25,000,000 instead of $25,000, would your answer change under the payback method?
Value of a mixed stream For the mixed stream of cash flows shown in the following table, . determine the future value at the end of the final year if deposits are made into an account paying annual interest of 11%, assuming that no withdrawals are made during the period and that the deposits are made: a. At the end of each year. b. At the beginning of each year. a. The future value at the end of the final year if deposits are made at the end of each year is $. (Round to the nearest dollar)
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Internal Rate of Return Method The internal rate of return method is used by King Bros. Construction Co. in analyzing a capital expenditure proposal that involves an investment of $48,592 and annual net cash flows of $16,000 for each of the four years of its useful life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 3.465 4 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 4.917 4.355 6 4.111 3.784 3.326 4.160 7 5.582 4.868 4.564 3.605 8 6.210 5.335 4.968 4.487 3.837 5.759 6.802 5.328 4.772 4.031 6.145 10 7,360 5.650 5.019 4.192 a. Determine a present value factor for an annuity of $1 which can be used in determining the internal rate of return. If required, round your answer to three decimal places. b. Using the factor determined in part (a) and the present value of an annuity of $1 table above, determine the internal rate of return for the proposal. %
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $176,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $44,000. The company's minimum desired rate of return for net present value analysis is 15%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Compute the following: a. The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place.fill in…

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