MANAG ACCT F/MGRS-CONNECT+PROCTORIO PLUS
5th Edition
ISBN: 9781266017506
Author: Noreen
Publisher: MCG
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Chapter 7C, Problem 7C.1E
To determine
Concept Introduction:
The
The net present value of the investment.
Expert Solution & Answer
Answer to Problem 7C.1E
The net present value of the investment is $145,511.
Explanation of Solution
The net present value of the investment is calculated as follows:
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Initial investment (I) | $ (2,000,000) | |||||
| Net operating income (A) | $ 300,000 | $ 300,000 | $ 300,000 | $ 300,000 | $ 300,000 | |
| Income tax (B) = (A*30%) | $ 90,000 | $ 90,000 | $ 90,000 | $ 90,000 | $ 90,000 | |
| Income after tax (C) = (A-B) | $ 210,000 | $ 210,000 | $ 210,000 | $ 210,000 | $ 210,000 | |
| $ 400,000 | $ 400,000 | $ 400,000 | $ 400,000 | $ 400,000 | ||
| Cash inflows after tax (E) = (C+D) | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 | |
| Net | $ (2,000,000) | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 |
| PV of $ 1(13%) (G) | 1.00000 | 0.88496 | 0.78315 | 0.69305 | 0.61332 | 0.54276 |
| PV = F*G | $ (2,000,000) | $ 539,823 | $ 477,719 | $ 422,761 | $ 374,124 | $ 331,084 |
| Net present value (Sum of PVs) | $ 145,511 |
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Students have asked these similar questions
Cline Manufacturing Company uses a job order system and maintains perpetual inventory records.
Indicate the the appropriate account(s) to be debited and credited for the transactions listed below. (On multiple entries enter
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1.
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Based on the screenshot, what is the maximim flow?
Star Company incurred and paid the following costs for research and development activities:
Material used from inventory
$ 60,000
Wages and salaries
85,000
Allocation of general and administrative costs
25,000
Depreciation on building housing multiple research and development activities
30,000
Machine purchased for research and development project that has no future alternative uses
35,000
Total
$235,000
If Star includes all these costs in research and development expense, including the entire cost of the machine with no alternative future uses, which of the following would be included in the journal entry?
Chapter 7C Solutions
MANAG ACCT F/MGRS-CONNECT+PROCTORIO PLUS
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