The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return. To compute : The net present value for all three investments.

Question

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Answer 1

Question

Chapter 7, Problem 7.29P

1

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

To compute: The net present value for all three investments.

1

Expert Solution

Answer to Problem 7.29P

Net present value for Common stock is $7505.227, for preferred stock is (8790.85) and bond is ($3199.35)

Explanation of Solution

Net present value for Common Stock:

Present value of cash flow=FV(1 (1+r) n )=160000(1 (1+1.16) 3 )=102505.227

Net present value =Present value of cashlfow- Cost of common stock = 102,505.227−95,000=$7505.227

Net present value of preferred Stock:

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
1800	0.847	1524.6
1800	0.718	1292.4
1800	0.608	1094.4
Total		3911.4

Sale of preferred stock is $27000

Present value of prefered stock selling price=FV(1 (1+r) n )=27000(1 (1+0.16) 3 )=17297.75

Total present value of all cash inflow

Total present value of cash inflow=17297.75+3911.4=21209.15

Net present value of preferred stock=21209.15−30000=($8790.85)

Net present value for bond

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
6000	0.847	5082
6000	0.718	4308
6000	0.608	3648
Total		13038

Selling price of bond is $52,700

Present value of prefered stock selling price=FV(1 (1+r) n )=52700(1 (1+0.16) 3 )=33762.65

Total present value of all cash inflow

Total present value of cash inflow=33762.65+13038=$46800.65

Net present value of bond=46800.65−50,000=($3199.35)

Total Net present values of all three investments are:

Total Net present values of all three investments are=7505.227−8790.85−3199.35=(4484.973)

2

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

If L earn a 16% rate of return on all investment or not.

2

Expert Solution

Answer to Problem 7.29P

No L does not earn 16% rate of interest.

Explanation of Solution

The net present value of all three projects is negative therefore L did not earn 16% rate of return from her investment.

3

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

The minimum annual net cash inflow

3

Expert Solution

Answer to Problem 7.29P

The minimum annual net cash inflow should be $42350

Explanation of Solution

Net proceed for investment is $239,700

Required rate of return 20%

Present value annuity factor= (1+R)n−1R (1+R)n= (1+14%) 12−114% (1+14%) 15= 5.66

Annual cash inflow:

Annual cash inflow=investmentfactor for 12 year=$239,7005.66=$42349.8

Annual cash inflow should be $42350

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Students have asked these similar questions

managerial accounting

i need correct option

Mark purchased 200 shares of stock for $40 per share. During the year, he received $500 in dividends. He recently sold the stock for $55 per share. What was Mark's return on the stock? a) $3,500 b) $4,000 c) $3,900 d) $4,500

Answer 2

Question

Chapter 7, Problem 7.29P

1

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

To compute: The net present value for all three investments.

1

Expert Solution

Answer to Problem 7.29P

Net present value for Common stock is $7505.227, for preferred stock is (8790.85) and bond is ($3199.35)

Explanation of Solution

Net present value for Common Stock:

Present value of cash flow=FV(1 (1+r) n )=160000(1 (1+1.16) 3 )=102505.227

Net present value =Present value of cashlfow- Cost of common stock = 102,505.227−95,000=$7505.227

Net present value of preferred Stock:

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
1800	0.847	1524.6
1800	0.718	1292.4
1800	0.608	1094.4
Total		3911.4

Sale of preferred stock is $27000

Present value of prefered stock selling price=FV(1 (1+r) n )=27000(1 (1+0.16) 3 )=17297.75

Total present value of all cash inflow

Total present value of cash inflow=17297.75+3911.4=21209.15

Net present value of preferred stock=21209.15−30000=($8790.85)

Net present value for bond

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
6000	0.847	5082
6000	0.718	4308
6000	0.608	3648
Total		13038

Selling price of bond is $52,700

Present value of prefered stock selling price=FV(1 (1+r) n )=52700(1 (1+0.16) 3 )=33762.65

Total present value of all cash inflow

Total present value of cash inflow=33762.65+13038=$46800.65

Net present value of bond=46800.65−50,000=($3199.35)

Total Net present values of all three investments are:

Total Net present values of all three investments are=7505.227−8790.85−3199.35=(4484.973)

2

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

If L earn a 16% rate of return on all investment or not.

2

Expert Solution

Answer to Problem 7.29P

No L does not earn 16% rate of interest.

Explanation of Solution

The net present value of all three projects is negative therefore L did not earn 16% rate of return from her investment.

3

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

The minimum annual net cash inflow

3

Expert Solution

Answer to Problem 7.29P

The minimum annual net cash inflow should be $42350

Explanation of Solution

Net proceed for investment is $239,700

Required rate of return 20%

Present value annuity factor= (1+R)n−1R (1+R)n= (1+14%) 12−114% (1+14%) 15= 5.66

Annual cash inflow:

Annual cash inflow=investmentfactor for 12 year=$239,7005.66=$42349.8

Annual cash inflow should be $42350

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Answer 3

Question

Chapter 7, Problem 7.29P

1

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

To compute: The net present value for all three investments.

1

Expert Solution

Answer to Problem 7.29P

Net present value for Common stock is $7505.227, for preferred stock is (8790.85) and bond is ($3199.35)

Explanation of Solution

Net present value for Common Stock:

Present value of cash flow=FV(1 (1+r) n )=160000(1 (1+1.16) 3 )=102505.227

Net present value =Present value of cashlfow- Cost of common stock = 102,505.227−95,000=$7505.227

Net present value of preferred Stock:

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
1800	0.847	1524.6
1800	0.718	1292.4
1800	0.608	1094.4
Total		3911.4

Sale of preferred stock is $27000

Present value of prefered stock selling price=FV(1 (1+r) n )=27000(1 (1+0.16) 3 )=17297.75

Total present value of all cash inflow

Total present value of cash inflow=17297.75+3911.4=21209.15

Net present value of preferred stock=21209.15−30000=($8790.85)

Net present value for bond

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
6000	0.847	5082
6000	0.718	4308
6000	0.608	3648
Total		13038

Selling price of bond is $52,700

Present value of prefered stock selling price=FV(1 (1+r) n )=52700(1 (1+0.16) 3 )=33762.65

Total present value of all cash inflow

Total present value of cash inflow=33762.65+13038=$46800.65

Net present value of bond=46800.65−50,000=($3199.35)

Total Net present values of all three investments are:

Total Net present values of all three investments are=7505.227−8790.85−3199.35=(4484.973)

2

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

If L earn a 16% rate of return on all investment or not.

2

Expert Solution

Answer to Problem 7.29P

No L does not earn 16% rate of interest.

Explanation of Solution

The net present value of all three projects is negative therefore L did not earn 16% rate of return from her investment.

3

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

The minimum annual net cash inflow

3

Expert Solution

Answer to Problem 7.29P

The minimum annual net cash inflow should be $42350

Explanation of Solution

Net proceed for investment is $239,700

Required rate of return 20%

Present value annuity factor= (1+R)n−1R (1+R)n= (1+14%) 12−114% (1+14%) 15= 5.66

Annual cash inflow:

Annual cash inflow=investmentfactor for 12 year=$239,7005.66=$42349.8

Annual cash inflow should be $42350

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Answer 4

Question

Chapter 7, Problem 7.29P

1

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

To compute: The net present value for all three investments.

1

Expert Solution

Answer to Problem 7.29P

Net present value for Common stock is $7505.227, for preferred stock is (8790.85) and bond is ($3199.35)

Explanation of Solution

Net present value for Common Stock:

Present value of cash flow=FV(1 (1+r) n )=160000(1 (1+1.16) 3 )=102505.227

Net present value =Present value of cashlfow- Cost of common stock = 102,505.227−95,000=$7505.227

Net present value of preferred Stock:

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
1800	0.847	1524.6
1800	0.718	1292.4
1800	0.608	1094.4
Total		3911.4

Sale of preferred stock is $27000

Present value of prefered stock selling price=FV(1 (1+r) n )=27000(1 (1+0.16) 3 )=17297.75

Total present value of all cash inflow

Total present value of cash inflow=17297.75+3911.4=21209.15

Net present value of preferred stock=21209.15−30000=($8790.85)

Net present value for bond

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
6000	0.847	5082
6000	0.718	4308
6000	0.608	3648
Total		13038

Selling price of bond is $52,700

Present value of prefered stock selling price=FV(1 (1+r) n )=52700(1 (1+0.16) 3 )=33762.65

Total present value of all cash inflow

Total present value of cash inflow=33762.65+13038=$46800.65

Net present value of bond=46800.65−50,000=($3199.35)

Total Net present values of all three investments are:

Total Net present values of all three investments are=7505.227−8790.85−3199.35=(4484.973)

2

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

If L earn a 16% rate of return on all investment or not.

2

Expert Solution

Answer to Problem 7.29P

No L does not earn 16% rate of interest.

Explanation of Solution

The net present value of all three projects is negative therefore L did not earn 16% rate of return from her investment.

3

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

The minimum annual net cash inflow

3

Expert Solution

Answer to Problem 7.29P

The minimum annual net cash inflow should be $42350

Explanation of Solution

Net proceed for investment is $239,700

Required rate of return 20%

Present value annuity factor= (1+R)n−1R (1+R)n= (1+14%) 12−114% (1+14%) 15= 5.66

Annual cash inflow:

Annual cash inflow=investmentfactor for 12 year=$239,7005.66=$42349.8

Annual cash inflow should be $42350

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Answer 5

Chapter 7, Problem 7.29P

1

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

To compute: The net present value for all three investments.

1

Expert Solution

Answer to Problem 7.29P

Net present value for Common stock is $7505.227, for preferred stock is (8790.85) and bond is ($3199.35)

Explanation of Solution

Net present value for Common Stock:

Present value of cash flow=FV(1 (1+r) n )=160000(1 (1+1.16) 3 )=102505.227

Net present value =Present value of cashlfow- Cost of common stock = 102,505.227−95,000=$7505.227

Net present value of preferred Stock:

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
1800	0.847	1524.6
1800	0.718	1292.4
1800	0.608	1094.4
Total		3911.4

Sale of preferred stock is $27000

Present value of prefered stock selling price=FV(1 (1+r) n )=27000(1 (1+0.16) 3 )=17297.75

Total present value of all cash inflow

Total present value of cash inflow=17297.75+3911.4=21209.15

Net present value of preferred stock=21209.15−30000=($8790.85)

Net present value for bond

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
6000	0.847	5082
6000	0.718	4308
6000	0.608	3648
Total		13038

Selling price of bond is $52,700

Present value of prefered stock selling price=FV(1 (1+r) n )=52700(1 (1+0.16) 3 )=33762.65

Total present value of all cash inflow

Total present value of cash inflow=33762.65+13038=$46800.65

Net present value of bond=46800.65−50,000=($3199.35)

Total Net present values of all three investments are:

Total Net present values of all three investments are=7505.227−8790.85−3199.35=(4484.973)

2

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

If L earn a 16% rate of return on all investment or not.

2

Expert Solution

Answer to Problem 7.29P

No L does not earn 16% rate of interest.

Explanation of Solution

The net present value of all three projects is negative therefore L did not earn 16% rate of return from her investment.

3

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

The minimum annual net cash inflow

3

Expert Solution

Answer to Problem 7.29P

The minimum annual net cash inflow should be $42350

Explanation of Solution

Net proceed for investment is $239,700

Required rate of return 20%

Present value annuity factor= (1+R)n−1R (1+R)n= (1+14%) 12−114% (1+14%) 15= 5.66

Annual cash inflow:

Annual cash inflow=investmentfactor for 12 year=$239,7005.66=$42349.8

Annual cash inflow should be $42350

Answer 6

Chapter 7, Problem 7.29P

1

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

To compute: The net present value for all three investments.

1

Expert Solution

Answer to Problem 7.29P

Net present value for Common stock is $7505.227, for preferred stock is (8790.85) and bond is ($3199.35)

Explanation of Solution

Net present value for Common Stock:

Present value of cash flow=FV(1 (1+r) n )=160000(1 (1+1.16) 3 )=102505.227

Net present value =Present value of cashlfow- Cost of common stock = 102,505.227−95,000=$7505.227

Net present value of preferred Stock:

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
1800	0.847	1524.6
1800	0.718	1292.4
1800	0.608	1094.4
Total		3911.4

Sale of preferred stock is $27000

Present value of prefered stock selling price=FV(1 (1+r) n )=27000(1 (1+0.16) 3 )=17297.75

Total present value of all cash inflow

Total present value of cash inflow=17297.75+3911.4=21209.15

Net present value of preferred stock=21209.15−30000=($8790.85)

Net present value for bond

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
6000	0.847	5082
6000	0.718	4308
6000	0.608	3648
Total		13038

Selling price of bond is $52,700

Present value of prefered stock selling price=FV(1 (1+r) n )=52700(1 (1+0.16) 3 )=33762.65

Total present value of all cash inflow

Total present value of cash inflow=33762.65+13038=$46800.65

Net present value of bond=46800.65−50,000=($3199.35)

Total Net present values of all three investments are:

Total Net present values of all three investments are=7505.227−8790.85−3199.35=(4484.973)

Answer 7

Chapter 7, Problem 7.29P

1

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

To compute: The net present value for all three investments.

Answer 8

1

Expert Solution

Answer to Problem 7.29P

Net present value for Common stock is $7505.227, for preferred stock is (8790.85) and bond is ($3199.35)

Answer 9

1

Expert Solution

Answer 10

1

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Net present value for Common Stock:

Present value of cash flow=FV(1 (1+r) n )=160000(1 (1+1.16) 3 )=102505.227

Net present value =Present value of cashlfow- Cost of common stock = 102,505.227−95,000=$7505.227

Net present value of preferred Stock:

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
1800	0.847	1524.6
1800	0.718	1292.4
1800	0.608	1094.4
Total		3911.4

Sale of preferred stock is $27000

Present value of prefered stock selling price=FV(1 (1+r) n )=27000(1 (1+0.16) 3 )=17297.75

Total present value of all cash inflow

Total present value of cash inflow=17297.75+3911.4=21209.15

Net present value of preferred stock=21209.15−30000=($8790.85)

Net present value for bond

Cash inflow is 5400 for three year each:

Future value	PV factor	Present value
6000	0.847	5082
6000	0.718	4308
6000	0.608	3648
Total		13038

Selling price of bond is $52,700

Present value of prefered stock selling price=FV(1 (1+r) n )=52700(1 (1+0.16) 3 )=33762.65

Total present value of all cash inflow

Total present value of cash inflow=33762.65+13038=$46800.65

Net present value of bond=46800.65−50,000=($3199.35)

Total Net present values of all three investments are:

Total Net present values of all three investments are=7505.227−8790.85−3199.35=(4484.973)

Answer 13

2

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

If L earn a 16% rate of return on all investment or not.

2

Expert Solution

Answer to Problem 7.29P

No L does not earn 16% rate of interest.

Explanation of Solution

The net present value of all three projects is negative therefore L did not earn 16% rate of return from her investment.

Answer 14

2

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

If L earn a 16% rate of return on all investment or not.

Answer 15

2

Expert Solution

Answer to Problem 7.29P

No L does not earn 16% rate of interest.

Answer 16

2

Expert Solution

Answer 17

2

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

The net present value of all three projects is negative therefore L did not earn 16% rate of return from her investment.

Answer 20

3

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

The minimum annual net cash inflow

3

Expert Solution

Answer to Problem 7.29P

The minimum annual net cash inflow should be $42350

Explanation of Solution

Net proceed for investment is $239,700

Required rate of return 20%

Present value annuity factor= (1+R)n−1R (1+R)n= (1+14%) 12−114% (1+14%) 15= 5.66

Annual cash inflow:

Annual cash inflow=investmentfactor for 12 year=$239,7005.66=$42349.8

Annual cash inflow should be $42350

Answer 21

3

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

The minimum annual net cash inflow

Answer 22

3

Expert Solution

Answer to Problem 7.29P

The minimum annual net cash inflow should be $42350

Answer 23

3

Expert Solution

Answer 24

3

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Net proceed for investment is $239,700

Required rate of return 20%

Present value annuity factor= (1+R)n−1R (1+R)n= (1+14%) 12−114% (1+14%) 15= 5.66

Annual cash inflow:

Annual cash inflow=investmentfactor for 12 year=$239,7005.66=$42349.8

Annual cash inflow should be $42350

Answer 27

Ch. 7 - Prob. 7.1Q Ch. 7 - Prob. 7.2Q Ch. 7 - Prob. 7.3Q Ch. 7 - Prob. 7.4Q Ch. 7 - Prob. 7.5Q Ch. 7 - Prob. 7.6Q Ch. 7 - Prob. 7.7Q Ch. 7 - Prob. 7.8Q Ch. 7 - Prob. 7.9Q Ch. 7 - Prob. 7.10Q

Answer to Problem 7.29P

Explanation of Solution

Answer to Problem 7.29P

Explanation of Solution

Answer to Problem 7.29P

Explanation of Solution

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Chapter 7 Solutions