Internal Rate of Return Method for a Service CompanyThe Riverton Company, announced a $1,024,320 million expansion of lodging properties, ski lifts, and terrain in Park City, Utah. Assume that this investment is estimated to produce $192,000 million inequal annual cash flows for each of the first eight years of the project life.Present Value of an Annuity of $1 at Compound Interest15%Year6%10%12%20%0.90910.9430.8930.8700.8331.7362.1.8331.6901.6261.5282.6732.4872.4022.2832.1063.03743.4653.1702.8552.5893.35354.2123.7913.6052.99164.9174.3554.1113.7853.3265.5824.8684.5644.1603.60586.2105.3354.9684.4873.8376.8025.3284.03195.7594.772107.3606.1455.6505.0194.192a. 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?

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Answered: Internal Rate of Return Method for a…

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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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.
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Part Five APPLY THE CONCEPTS: Net present value and Present value index This project requires an initial investment of $175,000. The project will have a life of 8 years. Annual revenues associated with the project will be $130,000 and expenses associated with the project will be $35,000. Calculate the net present value and the present value index for each project using the present value tables provided below. Present Value of $1 (a single sum) at Compound Interest. Present Value of an Annuity of $1 at Compound Interest. Note: • Use a minus sign to indicate a negative NPV. • If an amount is zero, enter "0". • Enter the present value index to 2 decimals. Total present value of net cash flow Amount to be invested Net present value Present value index: Project A Project B Sutherland Corp. is looking to invest in Project A or Project B. The data surrounding each project is provided below. Sutherland's cost of capital is 8%. Project A Project A Project B Project B This project requires an…
Internal Rate of Return Method for a Service Company The Riverton Company, announced a $570,505 million expansion of lodging properties, ski lifts, and terrain in Park City, Utah. Assume that this investment is estimated to produce $131,000 million in equal annual cash flows for each of the first six years of the project life. Present Value of an Annuity of $1 at Compound Interest Year 12% 15% 1 2 3 4 5 6 7 8 9 10 6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 10% 0.909 0.893 1.736 1.690 2.487 2.402 3.170 3.037 3.791 3.605 4.355 4.111 4.868 5.335 5.759 6.145 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 a. Determine the expected internal rate of return of this project for six 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?
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 $83,200 and annual net cash flows of $20,000 for each of the seven 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 3.352 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.fill in the blank 1 b. Using the factor determined in part (a) and the present value of an annuity of $1 table above,…
QUESTION 4 J'adore Corporation is in the process of deciding to purchase new equipment. The cost of capital is 10 percent and expected cash flows for each equipment are given as follows: a) b) Year 0 1 2 3 Calculate the following: c) d) 4 5 Equipment AAA (RM) 10,000 7,000 3,500 3,000 1,500 2,500 Payback period for the two projects. Net present value for the two projects. Internal rate of return for Project BBB only. Which project would be selected? State your reason. Equipment BBB (RM) 10,000 4,000 4,000 4,000 4,000 4,000
Cash payback period for a service company Haukea Clothing Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of $140,000 and each with an eight-year life and expected total net cash flows of $280,000. Location 1 is expected to provide equal annual net cash flows of $35,000, and Location 2 is expected to have the following unequal annual net cash flows: Year Amount Year Amount Year 1 $63,000 Year 5 $34,000 Year 2 48,000 Year 6 25,000 Year 3 29,000 Year 7 20,000 Year 4 45,000 Year 8 16,000 Determine the cash payback period for both location proposals. Location Year Location 1 years Location 2 years
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. %
Required: 1a. Compute the cash payback period for each project. Cash Payback Period Plant Expansion 2 years Retail Store Expansion 2 years 1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar. Plant Expansion Retail Store Expansion Total present value of net cash flow Less amount to be invested Net present value 78,782 73,933 2. Because of the timing of the receipt of the net cash flows, the plant expansion offers a higher net present value
Net Present Value Method—Annuity Briggs Excavation Company is planning an investment of $228,600 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for six years. Customers will be charged $120 per hour for bulldozer work. The bulldozer operator costs $37 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $20,000. The bulldozer uses fuel that is expected to cost $48 per hour of bulldozer operation. 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 a. Determine the equal annual net cash flows from operating the bulldozer. Use a minus sign…

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