Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 25, Problem 25.7EX
(a)
To determine
Net present value method is the method which is used to compare the initial
To calculate: The net present value of the investment of Company D.
(b)
To determine
To explain: whether the management would look with favor on the proposal.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Net Present Value Method
The following data are accumulated by Paxton Company in evaluating the purchase of $90,800 of equipment, having a four-year useful life:
The following data are accumulated by Lingle Company in evaluating the purchase of $180,000 of equipment having a 4-year useful life:
Net Income
Net Cash Flow
Year 1
$51,000
$96,000
Year 2
33,000
78,000
Year 3
15,000
60,000
Year 4
3,000
48,000
Assuming that the desired rate of return is 15%, determine the net present value for the proposal. Use the table of the present value of $1 appearing in Exhibit 2 of this chapter.
4. The following data are accumulated by Geddes Company in evaluating the purchase of $150,000
of equipment, having a four-year useful life:
Year 1
Year 2
Year 3
Year 4
Year
Net Income
$43,500
26,500
13,500
2,900
Net Cash Flow
$81,000
64,000
50,500
40,000
a. Assuming that the desired rate of return is 15%, determine the net present value for the
proposal. Use the table of the present value of $1 appearing in Exhibit 2 of this chapter.
b. Would management be likely to look with favor on the proposal? Explain.
Chapter 25 Solutions
Financial & Managerial Accounting
Ch. 25 - Prob. 1DQCh. 25 - Discuss the principal limitations of the cash...Ch. 25 - Prob. 3DQCh. 25 - Prob. 4DQCh. 25 - Prob. 5DQCh. 25 - Prob. 6DQCh. 25 - Prob. 7DQCh. 25 - Two projects have an identical net present value...Ch. 25 - Prob. 9DQCh. 25 - Prob. 10DQ
Ch. 25 - Prob. 11DQCh. 25 - Give an example of a qualitative factor that...Ch. 25 - Average rate of return Determine the average rate...Ch. 25 - Average rate of return Determine the average rate...Ch. 25 - Cash payback period A project has estimated annual...Ch. 25 - Prob. 25.2BPECh. 25 - Prob. 25.3APECh. 25 - Prob. 25.3BPECh. 25 - Internal rate of return A project is estimated to...Ch. 25 - Prob. 25.4BPECh. 25 - Prob. 25.5APECh. 25 - Prob. 25.5BPECh. 25 - Prob. 25.1EXCh. 25 - Average rate of returncost savings Midwest...Ch. 25 - Average rate of returnnew product Galactic Inc. is...Ch. 25 - Calculate cash flows Natures Way Inc. is planning...Ch. 25 - Prob. 25.5EXCh. 25 - Cash payback method Lily Products Company is...Ch. 25 - Prob. 25.7EXCh. 25 - Prob. 25.8EXCh. 25 - Prob. 25.9EXCh. 25 - Prob. 25.10EXCh. 25 - Net present value method for a service company...Ch. 25 - Present value index Dip N' Dunk Doughnuts has...Ch. 25 - Net present value method and present value index...Ch. 25 - Average rate of return, cash payback period, net...Ch. 25 - Cash payback period, net present value analysis,...Ch. 25 - Internal rate of return method The internal rate...Ch. 25 - Prob. 25.17EXCh. 25 - Internal rate of return methodtwo projects Munch N...Ch. 25 - Prob. 25.19EXCh. 25 - Prob. 25.20EXCh. 25 - Net present value unequal lives Bunker Hill Mining...Ch. 25 - Net present value unequal lives Daisys Creamery...Ch. 25 - Prob. 25.1APRCh. 25 - Cash payback period, net present value method, and...Ch. 25 - Prob. 25.3APRCh. 25 - Prob. 25.4APRCh. 25 - Prob. 25.5APRCh. 25 - Prob. 25.6APRCh. 25 - Prob. 25.1BPRCh. 25 - Cash payback period, net present value method, and...Ch. 25 - Prob. 25.3BPRCh. 25 - Net present value method, internal rate of return...Ch. 25 - Prob. 25.5BPRCh. 25 - Capital rationing decision for a service company...Ch. 25 - Ethics in Action Danielle Hastings was recently...Ch. 25 - Prob. 25.2CPCh. 25 - Prob. 25.3CPCh. 25 - Qualitative issues in investment analysis The...Ch. 25 - Prob. 25.5CP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Assume Home Garden Inc. in MAD 26-5 assigns the following probabilities to the estimated construction cost of the warehouse and annual net cash flows: a. Compute the expected value of the construction cost. b. Compute the expected value of the annual net cash flows. c. Determine the expected net present value of building the distribution warehouse, assuming a desired rate of return of 14% and using the expected values computed in parts (a) and (b). Use the present value tables provided in Appendix A. Round to the nearest dollar. d. Based on your results in part (c), should Home Garden Inc. build the distribution warehouse?arrow_forwardB2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $369,600 with a 8-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 147,840 units of the equipment's product each year. The expected annual income related to this equipment follows. Sales Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (30%) Net income If at least an 10% return on this investment must be earned, compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Chart Values are Based on: Select Chart n= j= Amount 8 10 % X PV Factor =arrow_forwardAssume that a company is considering a capital investment project with a four-year time horizon and the following cash flows: Cost of new equipment Working capital required Annual net cash inflows Maintenance and repairs in third year Salvage value of equipment in fourth year Click here to view Exhibit 14B-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using the tables provided. Assuming the company's required rate of return is 20%, the profitability index of the project is closest to: Multiple Choice $210,000 $ 50,000 $100,000 $ 40,000 $ 30,000 1.05 progarrow_forward
- Net Present Value Method, Present Value Index, and Analysis for a service companyarrow_forwardAverage Rate of Return, Cash Payback Period, Net Present Value Method Southwest Transportation Inc. is considering a distribution facility at a cost of $195,000. The facility has an estimated life of 10 years and a no residual value. It is expected to provide yearly net cash flows of $39,000. The company's minimum desired rate of return for net present value analysis is 10%. Click here to access the present value tables (Exhibit 2 and Exhibit 5) to use for this problem. a. Compute average rate of return, giving effect to straight-line depreciation on the investment. Round to one decimal place.fill in the blank 1 % b. Compute the cash payback period.fill in the blank 2 years c. Compute the net present value. If required, use the minus to indicate a negative net present value. Total present value of annual net cash flows $fill in the blank 3 Less: amount to be invested fill in the blank 4 Equals: net present value $fill in the blank 5arrow_forwardRequired information A company that manufactures magnetic flow meters expects to undertake a project that will have the cash flows estimated. First cost, $. Equipment replacement cost in year 2, $ Annual operating cost, $/year Salvage value, $ Life, years -870,000 -300,000 -920,000 250,000 4 At an interest rate of 10% per year, what is the equivalent annual cost of the project? Find the AW value using tabulated factors. The equivalent annual cost of the project is $-1arrow_forward
- Sensitivity analysis: Boulder Creek Industries Boulder Creek Industries is considering an investment in equipment based on the following estimates: Line Item Description Value Cost of equipment $3,000,000 Residual value $200,000 Useful life 10 years a. Determine the net present value of the equipment, assuming a desired rate of return of 12% and annual net cash flows of $800,000. Use the present value tables appearing in Exhibits 2 and 5 of this chapter.Net present value fill in the blank 1 of 1$ b. Determine the net present value of the equipment, assuming a desired rate of return of 12% and annual net cash flows of $400,000, $600,000, and $800,000. Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value. Annual Net Cash Flow $400,000 $600,000 $800,000 Net present value $fill in the blank 2 $fill in the blank 3 $fill in the blank 4 c. Determine the…arrow_forwardThe following details are provided by a manufacturing company: Investment Useful life Estimated annual net cash inflows for first year Estimated annual net cash inflows for second year Estimated annual net cash inflows for next ten years Residual value Product line $1,170,000 12 years $500,000 $360,000 $360,000 $50,000 Depreciation method Straight-line 14% Required rate of return Calculate the payback period for the investment. (Round your answer to two decimal places.) OA. 2.34 years OB. 2.77 years OC. 2.86 years OD. 2.94 yearsarrow_forwardA company is considering a $184,000 investment in machinery with the following net cash flows. The company requires a 10% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Net Cash Flow (a) Compute the net present value of this investment. (b) Should the machinery be purchased? Required A Required B Year 1 $11,000 Year Year 2 $31,000 Complete this question by entering your answers in the tabs below. Year 1 Year 2 Year 3 Net Cash Flows Year 3 $61,000 Compute the net present value of this investment. (Round your present value factor to 4 decimals. Round your final answers to the nearest whole dollar.) Present Value Factor Year 4 $46,000 Present Value of Net Cash Flows Year 5 $123,000arrow_forward
- Complete the projected income statement for the first five years of the project. Fill in the following details , Determine the PAT of the project as a banker will you finance them on the basis of PAT Year 1 2 3 4 Capacity utilization (%) 55 65 75 85 85 Sales Operating expenses Material Salaries Marketing & other 119 137 155 173 173 expenses PBDIT Depreciation 236.92 180.10 137.38 105.20 80.98 Prelm. Exp. Wloff 10 10 10 10 10 PBIT Int. on TL Int. on WC loan 4.50 4.50 4.50 4.50 4.50arrow_forwardThe following information is available for a potential investment for Panda Company:arrow_forwardA project with the following costs are under consideration to determine its profitability. Using the IRR comparison, and an annual MARR of 10% compounded semiannually, determine if the project should be executed. First cost Semiannual operating cost Semiannual income Salvage value Life in years a. IRR = 18.7% semiannual O b. IRR = 15.3% semiannual Oc. IRR = 16.9% semiannual Od. IRR = 17% semiannual : $45,000 : $10,000 : $20,000 : $20,,000 : 4 yearsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,