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 determined by the business, based on the net income from the investment, and it is also called as the discounted cash flow method. To determine: The net present value of each investment, using the present value of $1 table in Exhibit 5, ignoring the unequal lives of the project.

Question

Bonnie and Clyde are the only two shareholders in Getaway Corporation. Bonnie owns 60 shares with a basis of $3,000, and Clyde owns the remaining 40 shares with a basis of $12,000. At year-end, Getaway is considering different alternatives for redeeming some shares of stock. Evaluate whether each of these stock redemption transactions qualify for sale or exchange treatment. Getaway redeems 29 of Bonnie’s shares for $10,000. Getaway has $26,000 of E&P at year-end and Bonnie is unrelated to Clyde.

Answer 1

Question

Chapter 26, Problem 26.5BPR

1.

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 determined by the business, based on the net income from the investment, and it is also called as the discounted cash flow method.

To determine: The net present value of each investment, using the present value of $1 table in Exhibit 5, ignoring the unequal lives of the project.

2.

To determine

To calculate: The net present value of each project assuming the office expansion is adjusted to a four year life, using the present value of $1 table in Exhibit 2.

3.

To determine

To prepare: The report the merits of the two investments to the capital investment committee.

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Bonnie and Clyde are the only two shareholders in Getaway Corporation. Bonnie owns 60 shares with a basis of $3,000, and Clyde owns the remaining 40 shares with a basis of $12,000. At year-end, Getaway is considering different alternatives for redeeming some shares of stock. Evaluate whether each of these stock redemption transactions qualify for sale or exchange treatment. Getaway redeems 29 of Bonnie’s shares for $10,000. Getaway has $26,000 of E&P at year-end and Bonnie is unrelated to Clyde.

Novak supply company a newly formed corporation , incurred the following expenditures related to the land , to buildings, and to machinery and equipment. abstract company's fee for title search $1,170 architect's fee $7,133 cash paid for land and dilapidated building thereon $195,750 removal of old building $45,000 LESS: salvage $12,375 $32,625 Interest on short term loans during construction…

Year Cash Flow 0 -$ 27,000 1 11,000 2 3 14,000 10,000 What is the NPV for the project if the required return is 10 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV $ 1,873.28 At a required return of 10 percent, should the firm accept this project? No Yes What is the NPV for the project if the required return is 26 percent?

Answer 2

Question

Chapter 26, Problem 26.5BPR

1.

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 determined by the business, based on the net income from the investment, and it is also called as the discounted cash flow method.

To determine: The net present value of each investment, using the present value of $1 table in Exhibit 5, ignoring the unequal lives of the project.

2.

To determine

To calculate: The net present value of each project assuming the office expansion is adjusted to a four year life, using the present value of $1 table in Exhibit 2.

3.

To determine

To prepare: The report the merits of the two investments to the capital investment committee.

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Answer 3

Question

Chapter 26, Problem 26.5BPR

1.

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 determined by the business, based on the net income from the investment, and it is also called as the discounted cash flow method.

To determine: The net present value of each investment, using the present value of $1 table in Exhibit 5, ignoring the unequal lives of the project.

2.

To determine

To calculate: The net present value of each project assuming the office expansion is adjusted to a four year life, using the present value of $1 table in Exhibit 2.

3.

To determine

To prepare: The report the merits of the two investments to the capital investment committee.

Expert Solution & Answer

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Answer 4

Question

Chapter 26, Problem 26.5BPR

1.

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 determined by the business, based on the net income from the investment, and it is also called as the discounted cash flow method.

To determine: The net present value of each investment, using the present value of $1 table in Exhibit 5, ignoring the unequal lives of the project.

2.

To determine

To calculate: The net present value of each project assuming the office expansion is adjusted to a four year life, using the present value of $1 table in Exhibit 2.

3.

To determine

To prepare: The report the merits of the two investments to the capital investment committee.

Expert Solution & Answer

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Answer 5

Chapter 26, Problem 26.5BPR

1.

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 determined by the business, based on the net income from the investment, and it is also called as the discounted cash flow method.

To determine: The net present value of each investment, using the present value of $1 table in Exhibit 5, ignoring the unequal lives of the project.

2.

To determine

To calculate: The net present value of each project assuming the office expansion is adjusted to a four year life, using the present value of $1 table in Exhibit 2.

3.

To determine

To prepare: The report the merits of the two investments to the capital investment committee.

Answer 6

Chapter 26, Problem 26.5BPR

1.

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 determined by the business, based on the net income from the investment, and it is also called as the discounted cash flow method.

To determine: The net present value of each investment, using the present value of $1 table in Exhibit 5, ignoring the unequal lives of the project.

Answer 7

Chapter 26, Problem 26.5BPR

1.

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 determined by the business, based on the net income from the investment, and it is also called as the discounted cash flow method.

To determine: The net present value of each investment, using the present value of $1 table in Exhibit 5, ignoring the unequal lives of the project.

Answer 8

2.

To determine

To calculate: The net present value of each project assuming the office expansion is adjusted to a four year life, using the present value of $1 table in Exhibit 2.

Answer 9

2.

To determine

To calculate: The net present value of each project assuming the office expansion is adjusted to a four year life, using the present value of $1 table in Exhibit 2.

Answer 10

3.

To determine

To prepare: The report the merits of the two investments to the capital investment committee.

Answer 11

3.

To determine

To prepare: The report the merits of the two investments to the capital investment committee.

Answer 12

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Ch. 26 - What are the principal objections to the use of...Ch. 26 - Discuss the principal limitations of the cash...Ch. 26 - Prob. 3DQ Ch. 26 - Your boss has suggested that a one-year payback...Ch. 26 - Prob. 5DQ Ch. 26 - Prob. 6DQ Ch. 26 - A net present value analysis used to evaluate a...Ch. 26 - Two projects haw an identical net present value of...Ch. 26 - Prob. 9DQ Ch. 26 - What are the major disadvantages of the use of the...

Solution Summary: The author calculates the net present value of Wichita and Topeka, ignoring the unequal lives of the projects.

To calculate: The net present value of each project assuming the office expansion is adjusted to a four year life, using the present value of $1 table in Exhibit 2.

To prepare: The report the merits of the two investments to the capital investment committee.

Chapter 26 Solutions