Explanation Present value is computed by discounting the future net cash flows. It is computed at the required rate of return of project and then subtracting the cash invested to determine the net present value . If a project has a positive net present value, then it is accepted. In the given situation, the discounted rate is given as 12%. If $100 is received in one year, the amount received is worth less than $ 100 from today because during this year, as money will be earned on $100. If $100 is received in the next year then the amount is received at discounted rate of one year...

FINANCIAL & MANAGERIAL ACCOUNTING (ACCES

9th Edition

ISBN: 9781265484040

Author: Wild

Publisher: MCG

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. …

Question

Chapter 24, Problem 8DQ

To determine

Investment decision:

Investment decision can be referred to as capital budgeting. It involves finding solutions to questions like whether to add to capital assets today will increase the revenues of tomorrow to cover costs.

The reason why the present value of $100 expected to receive one year from today is worth less than 4100 received today and the present value of $100 expected to receive one year from today discounted at 12%.

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Chapter 24 Solutions

FINANCIAL & MANAGERIAL ACCOUNTING (ACCES

Ch. 24 - Prob. 1QS Ch. 24 - QS 24-4 Analyzing payback periods P1 Howard Co. is...Ch. 24 - Prob. 15QS Ch. 24 - What is capital budgeting?Ch. 24 - Identify four reasons that capital budgeting...Ch. 24 - Prob. 4DQ Ch. 24 - Prob. 5DQ Ch. 24 - Prob. 6DQ Ch. 24 - Prob. 7DQ Ch. 24 - Prob. 8DQ

Ch. 24 - Prob. 9DQ

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