Net Present Value Method and Internal Rate of Return Method for a service company Wellington Healthcare Corp. is proposing to spend $152,550 on a 10-year project that has estimated net cash flows of $27,000 for each of the 10 years. 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 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.352 2.991 4.917 4.355 4.111 3.784 3.326 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 6.802 5.759 5.328 4.772 4.031 7.350 6.145 5.650 5.019 4.192 a. Compute the net present value, using a rate of return of 15%. Use the table of present value of an a uity of $1 presented above. If required, round to the nearest dollar, Use the minus sign to indicate a negative net present value. Present value of annual net cash flows Less amount to be invested 152,550 ✔ Net present value 282,160 X b. Based on the analysis prepared in part (a), is the rate of return (1) more than 15%, (2) 15%, or (3) less than 15%7 Less than 15% 1 2 3 4 5 6 7 8 9 10 434,710 X c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented above.
Net Present Value Method and Internal Rate of Return Method for a service company Wellington Healthcare Corp. is proposing to spend $152,550 on a 10-year project that has estimated net cash flows of $27,000 for each of the 10 years. 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 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.352 2.991 4.917 4.355 4.111 3.784 3.326 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 6.802 5.759 5.328 4.772 4.031 7.350 6.145 5.650 5.019 4.192 a. Compute the net present value, using a rate of return of 15%. Use the table of present value of an a uity of $1 presented above. If required, round to the nearest dollar, Use the minus sign to indicate a negative net present value. Present value of annual net cash flows Less amount to be invested 152,550 ✔ Net present value 282,160 X b. Based on the analysis prepared in part (a), is the rate of return (1) more than 15%, (2) 15%, or (3) less than 15%7 Less than 15% 1 2 3 4 5 6 7 8 9 10 434,710 X c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented above.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:4.212
3.791
3.605
3.352 2.991
4.917
4.355
4.111 3.784
3,326
5.582 4.868
4.564 4.160
3.605
6.210
5.335
4.968
4.487
3.837
6.802
5.759
5.328
4.772
4.031
7.360
6.145 5.650 5.019
4.192
a. Compute the net present value, using a rate of return of 15%. Use the table of present value of an annuity of $1 presented above. If required, round to the
nearest dollar. Use the minus sign to indicate a negative net present value.
Present value of annual net cash flows
434,710 X
Less amount to be invested
152,550 ✓
Net present value
282,160 X
b. Based on the analysis prepared in part (a), is the rate of return (1) more than 15%, (2) 15 %, or (3) less than 15%7
Less than 15%
5
6
7
8
9
10
c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented.
above
16.2 X %
Transcribed Image Text:Net Present Value Method and Internal Rate of Return Method for a service company
Wellington Healthcare Corp. is proposing to spend $152.550 on a 10-year project that has estimated net cash flows of $27,000 for each of the 10 years.
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
3.465
3.170 3.037 2.855
2.589
4.212
3.791
3.605 3.352
2.991
4.917
4.355
4.111
3.784 3.326
5.582
4.868 4.564
4.160 3.605
6.210
5.335
4.968
4.487 3.837
6.802
5,759 5.328 4.772 4.031
7.360
6.145 5.650 5.019
4.192
1
2
3
4
5
6
7
8
9
10
a. Compute the net present value, using a rate of return of 15%. Use the table of present value of an annuity of $1 presented above. If required, round to the
nearest dollar. Use the minus sign to indicate a negative net present value.
Present value of annual net cash flows
434,710 X
Less amount to be invested
152,550 ✔
282,160 X
Net present value
b. Based on the analysis prepared in part (a), is the rate of return (1) more than 15%, (2) 15%, or (3) less than 15% 7
Less than 15%
e. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented
above.
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