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GREEN Recycling Com ness today. It recycles p inum, and glass. The ir ness is $510,000. The r e first year of business p00. But it is expected ncrease at a rate of $4«

GREEN Recycling Com ness today. It recycles p inum, and glass. The ir ness is $510,000. The r e first year of business p00. But it is expected ncrease at a rate of $4«

FINANCIAL ACCOUNTING
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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Economics GO GREEN Recycling Company starts its recycling business today. It recycles paper, cardboard, aluminum, and glass. The initial investment for this business is $510,000. The net cash flow at the end of the first year of business is forecast to be only $10,000. But it is expected that the net cash flow will increase at a rate of $40,000 per year starting from the end of Year 2. (а) Draw a cash flow diagram for the first 5 years. (b) What is the present worth of ALL the cashflows for the first 5 years at an interest rate of 10% per year? Round off your final answer to the nearest integer. (c) If GO GREEN sells its business for $710,000 at the end of Year 5, can we say this business has achieved an internal rate of return greater than 20% per year? Why?
Transcribed Image Text:Economics GO GREEN Recycling Company starts its recycling business today. It recycles paper, cardboard, aluminum, and glass. The initial investment for this business is $510,000. The net cash flow at the end of the first year of business is forecast to be only $10,000. But it is expected that the net cash flow will increase at a rate of $40,000 per year starting from the end of Year 2. (а) Draw a cash flow diagram for the first 5 years. (b) What is the present worth of ALL the cashflows for the first 5 years at an interest rate of 10% per year? Round off your final answer to the nearest integer. (c) If GO GREEN sells its business for $710,000 at the end of Year 5, can we say this business has achieved an internal rate of return greater than 20% per year? Why?
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