The Hub is a business dedicated to providing rentable work spaces for localcompanies or self-employed individuals. As they begin to expand theirbusiness, they need to acquire a set of computers for an in-house computerlab. IBM offers the computers for a single payment of $55,000 due at the endof four years. Dell offers similar computers, but requires four annual paymentsof $13,000 due at the end of each year. The Hub could borrow the funds at 5%.Using discounted cash flows, determine which computers The Hub shouldpurchase.Select one:a. IBMO b. Del

Calculate Present value for IBM using the excel formula:

Answered: The Hub is a business dedicated to…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 6 % per year. Jeff & Bezos pays income taxes using 21 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. By doing so, the company would be saving $1.4 million pre-tax every single year. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. Doing that would have an estimated pre-tax annual cost of $1,970,000. Nets & Flicks' requirement is that the lease payments are made by Jeff & Bezos at the beginning of each year. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $8.8 million. If the company chooses to buy…
Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $90,000 and is expected to generate an additional $35,000 in cash flows for five years. A bank will make a $90,000 loan to the company at a 10% interest rate for this equipment’s purchase. Use the following table to determine the break-even time for this equipment. (Round the present value of cash flows to the nearest dollar.)
A computerized machining center has been proposed for a small tool manufacturing company. If the new system, which costs $125,000, is installed, it will generate annual revenues of $100,000 and will require $20,000 in annual labor, $12,000 in annual material expenses, and another $8,000 in annual overhead (power and utility) expenses. A loan of $100,000 is borrowed from the bank for installation of the machining center which is repaid by equal annual repayments in 5 years at an interest rate of 8% compounded quarterly. Note that there is a working-capital requirement of $23,331 in year 0 and full recovery of the working capital at the end of year 5 for the machining center. The machining center would be classified as a seven-year MACRS property. If the asset is held for eight years, we can depreciate a seven-year property in respective percentages of 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93%, and 4.46%. The company expects to phase out the facility at the end of five years,…
Accusoft Systems is offering small business owners a software package that keeps track of many accounting functions from bank transactions to sales invoices. The site license will cost $42,000 to install and will require a fee of $2000 every 3 months. If your company can save $13,500 every quarter and have the security of managing its books in-house, how long will it take for you to recover the investment at an interest rate of 10% per quarter? The time taken to recover the investment is determined to be |quarters.
HR wants to offer a Country Club membership for a group of employees that will cost the company $10,000 dollars a year. They will begin annually starting one year from now. 1. What amount must be invested today at 8.0% compounded annually to fund the scholarship program in perpetuity? 2. Given the current economic climate the CEO has lowered the initial investment amount you had available to $100,000, how much do you now have for the Country Club membership program?
Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $50,000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $545 per hour and her opportunity cost of capital is 11% per year. What does the IRR rule advise regarding the payment arrangement? (Hint: Find the monthly rate that will yield an effective annual rate of 11%.) What about the NPV rule? The annual IRR is%. (Round to two decimal places.)
Wilson Bryant Air Conditioning, a Middle Georgia HVAC company, wanted to build a web-based project tracking for all small HVAC companies in Middle Georgia. Wilson Bryant Air Conditioning asked SunTrust Bank for a loan of $5 million presenting their idea. They had an agreement with the SunTrust that they will repay the loan by allocating 80% of the company's profits each year for the first 4 years to SunTrust. In the fifth year, the company will pay the remaining balance on the loan in cash. The company assumes that it will not earn any profit in the first year. Also, the company anticipates that the profits will be $1.5 million per year in years 2 through 4. If the SunTrust accepts the deal at an interest rate of 14% per year, and the company's plan will work to perfection, what is the projected amount of the last loan payment (in year 5)? Draw the cash flow diagram.
A commercial real estate developer plans to borrow money to finance an upscale mall in an exclusive area of the city. The developer plans to get a loan that will be repaid with uniform payments of $300,000 beginning in year 2 and ending in year 16. How much will a bank be willing to loan at an interest rate of 13% per year? The bank will be willing to loan the developer a sum of $
Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $49,000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $550 per hour and her opportunity cost of capital is 16% per year. What does the IRR rule advise regarding the payment arrangement? (Hint: Find the monthly rate that will yield an effective annual rate of 16%.) What about the NPV rule? The annual IRR is ☐ %. (Round to two decimal places.)
Cohen Brothers Fixers R Us is a small company specializing in emergency home repairs. They are considering expanding into a domestic emergency consultation business. Doing so will involve investing $1 million in licensing, recruiting, training, advertising, and a phone call answering center. A staff of 20 licensed clinical social workers will be hired to perform emergency counseling. If the service is well-received (probability 60%) then cash flows will be $500,000 per year for 3 years. If the service is not well-received (probability 40%) then the cash flows will be $210,000 per year for 3 years. Calculate the expected NPV of the project. Cohen's discount rate is 10% -$40,953 -$45,049 -$49,554 -$54,509…
Suppose, you start your own business which is a pet store. The total cost of purchasing supplies and hiring labor is $50,000 per year. To run the pet store, you quit your job that pays $45,000 per year and use the building that you already own (a building like yours rents out for $60,000 per year). Also, your car payment is $24,000 per year (you may use your car for the business sometimes). What is the total opportunity cost of opening up a pet store for a year?
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 8 % per year. Jeff & Bezos pays income taxes using 24 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. By doing so, the company would be saving $3.2 million pre-tax every single year. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. Doing that would have an estimated pre-tax annual cost of $2,130,000. Nets & Flicks' requirement is that the lease payments are made by Jeff & Bezos at the beginning of each year. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $9.9 million. If the company chooses to buy them, the drones would be…

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS