The anticipated purchase ofpurchase of a fixedasset for $400,000, with a useful lifeof 5 years and no residual value, isexpected to yield total net income of$300,000 for the 5 years. The expectedaverage rate of return is 30%.a. Trueb. False

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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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Compare the alternatives C and D on the basis of a present worth analysis using an interest rate of 15.00% per year and a study period of 10 years. (Include a minus sign if necessary.) Alternative First Cost AOC, per Year Annual Increase in Operating Cost, per Year Salvage Value Life, Years C $-50000 $-9000 $-700 $6000 10 The present worth of alternative C is $ (Click to select) offers the lower present worth. D $-28000 $-5000 $-900 $700 5 and that of alternative D is $
1. A firm is considering two alternatives that have no salvage value. A Initial Cost $10,700 $5,500 Uniform Annual 2,100 1,800 Benefits Useful Life, in 8 4 years At the end of 4 years, another B may be purchased with the same cost, benefit and so forth. 1. Graph the EUAC or EUAW for the alternatives. Construct a choice table for interest rates from 0% to 100%. 2. If the MARR is 10%, which alternative should be selected?
c. A non-dividend paying financial asset has a price of $200 and a oneyearfuture on this asset has price equal to $215. If the continuouslycompounded rate of interest is 3%, show that one can make an arbitrageprofit and design a strategy to earn that profit.
Suppose that the annual revenues of Alternative 2 is known with certainty. By how much would the estimate of annual net revenues for Alternative 1 have to vary so that the initial decision based on these data would be reversed? MARR is 15% per year.
The expected average rate of return for a proposed investment of $589,600 in a fixed asset with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $237,920 for the four years is (round to two decimal points) Oa. 0.40% Оь. 10.09% Oc. 20.18% С. Od. 0.81%
Compare the following alternatives based on the equivalent uniform annual value analysis, using a 15% annual interest rate with continuous capitalization. Alternative A Alternative B Initial Cost $18000 $25000 Annual Cost $4000 $3600 Salvage Value $3000 $2500 Life (years) 3 4
Kk201. An asset produces $150 in two years, and $250 in four years, and the current price has been calculated toreflect a rate of return of 9% annually. Using the definition that convexity = second derivative of pricedivided by price, find the convexity of this asset evaluated at the annual yield rate of 9%.
Complete the following using the present value formula or financial calculator. Note: Do not round intermediate calculations. Round your final answer to the nearest cent. Amount desired at end of period $ 20,000 20 years Length of time Rate Compounded 8% Annually Period used Periodic rate % PV of amount desired at end of period
8. By taking n as 30years and using 6% both as MARR and discount rate, compare the below three possible alternatives by using NPV (net present value) and IRR methods, and recommend the best possible alternative. Alternatives Alternative A Types of cashflows Alternative C Initial capital Annual operation and ETB 40,000 maintenance cost Alternative B ЕTB 5,000,000 | ЕТB 7,000,00о |ЕTB 11,000,00 ЕТВ 100,000 ЕТВ 150,000 Annual benefit ЕТB 560,000 ЕТВ 800,000 ETB 1,050,000
What will be the total present value of an income flow starting with 1500TL/year in year 3 and ending in year 12 appreciating at a rate of 0.16, together with a lump sum income of 50 000TL to occur in year 15 if i:0.25? О а. less than 2000 TL O b. between 2001-4000 TL Oc. between 4001-6000 TL O d. between 6001-9000 TL O e. greater than 9001 TL
Compute for the following: 1. Accounting rate or return based on the average investment 2. Net Present Value 3. Traditional Payback Period

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The anticipated purchase of purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $300,000 for the 5 years. The expected average rate of return is 30%. a. True b. False