Net present value method: Net present value method is the method which is used to compare the initial cash outflow of investment with the present value of its cash inflows. In the net present value, the interest rate is desired by the business based on the net income from the investment, and it is also called as the discounted cash flow method . Present value index: Present value index is a technique, which is used to rank the proposals of the business. It is used by the management when the business has more investment proposals, and limited fund. The present value index is computed as follows: Present value index = Total present value of net cash flow Amount to be invested To calculate: The net present value of the investment of DC Incorporation.

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Chapter 26, Problem 26.22EX

To determine

Net present value method:

Net present value method is the method which is used to compare the initial cash outflow of investment with the present value of its cash inflows. In the net present value, the interest rate is desired by the business based on the net income from the investment, and it is also called as the discounted cash flow method.

Present value index:

Present value index is a technique, which is used to rank the proposals of the business. It is used by the management when the business has more investment proposals, and limited fund.

The present value index is computed as follows:

Present value index =Total present value of net cash flowAmount to be invested

To calculate: The net present value of the investment of DC Incorporation.

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Net Present Value-Unequal Lives Daisy’s Creamery Inc., is considering one of two investment options. Option 1 is a $46,000 investment in new blending equipment that is expected to produce equal annual cash flows of $15,000 for each of seven years. Option 2 is a $54,000 investment in a new computer system that is expected to produce equal annual cash flows of $19,000 for each of five years. The residual value of the blending equipment at the end of the fifth year is estimated to be $10,000. The computer system has no expected residual value at the end of the fifth year. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present…

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Belmont Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual A in net operating income of $210,000. The equipment will have an initial cost of $1,000,000 and an 8-year useful ife, if there is no salvage value of the equipment, what is the accounting rate of return? Multiple Choice O O 21.0% 16.0% O 42.0% O 13.5%