The annual depreciation cost is 10% of fixed capital investment. Let us assume straight line method of depreciation. c) 6.65%. The investment costs $45,600 and has an estimated $8,700 salvage value. What is the investment's payback period? Assume all sales revenue is received, Elmdale Company is considering an investment that will return a lump sum of $769,700, 7 years from now. Assume the company uses If the accounting rate of return is 12%, what was the purchase price of the mac. The excess cost over the book value of an investment that is due to expected above-average earnings is labeled on the consolidated balance sheet as: a. Free and expert-verified textbook solutions. The company's required rate of return is 13 percent. Required information (The following information applies to the questions displayed below.] The machine will cost $1,772,000 and is expected to produce a $193,000 after-tax net income to be re, A company can buy a machine that is expected to have a three-year life and a $36,000 salvage value. Q: Peng Company is considering an investment expected to generate an average net. A company has two investment choices that cost $3,000 each: one that brings in $10,000 in revenue at 8% interest in two years, and another that brings in $11,000 revenue at the same interest rate . QS 25-7 Computation of accounting rate of return LO P2 Compute the accounting rate of return for this investment; assume the company uses straight-line depreciation. 8 years b. If the weighted average cost of capital is 10% and the cost of equity is 15%, what is the horizon value, to the ne, Management of a firm with a cost of capital of 12 percent is considering a $100,000 investment with annual cash flow of $44,524 for three years. The present value of the future cash flows at the company's desired rate of return is $100,000. $2,000 per year for 10 years is the equivalent of $12,835 today ($2,000 6.4177) Assume the company uses straight-line depreciation. Compute the net present value of this investment. Peng Company is considering an Investment expected to generate an average net income after taxes of $3,000 for three years. Assume Peng requires a 5% return on its investments. If a table of present v, A company can buy a machine that is expected to have a three-year life and a $29,000 salvage value. What is Ronis' Return on Investment for 2015? Amount a. The company anticipates a yearly after-tax net income of $1,805. Each investment costs $1,000, and the firm's cost of capital is 10%. If the value of leased asset is $125 and the cost of debt is 10%, what is the, The cost of capital for a firm is 10 percent. A machine that costs $770,000 has an estimated residual value of $70,000 and an estimated useful life of 7 years. A company is considering investing in a new machine that requires a cash payment of $47,947 today. Solution: Annual depreciation = (Cost - Salvage value) / useful life = ($45,600 - $8,700) / 3 = $12,300 Annual cash i. It expects to generate $2 million in net earnings after taxes in the coming year. The following information applies to // Header code for stack // requesting to create source code The investment costs $45,300 and has an estimated $7,500 salvage value. Zhang et al. Using the original cost of the asset, the unadjusted rate of return o, The Charles Company is planning to invest $450,000 in a factory machine. The related cash flows, net of taxes, are ex, You have the following information on a potential investment. The company has projected the following annual cash flows f, Lt. Dan Corporation invested $80,000 in a manufacturing equipment. The initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. The estimated cash flow for the investment are as follows: N Description Cash flow ($) 0 price of the system Fo 1-4 revenue per, Joe Sixpack Inc. is considering an investment that will cost is $400,000. Peng Company is considering an investment expected to generate an average net income after taxes of $2,900 for three years. Using the straight line method of depreciation, calculate accumul, Lucky Company Is considering a capital investment in machinery: Initial investment $1,400,000 Residual value $300,000 Expected annual net cash inflows $200,000 Expected useful life 10 years Required r, The following data concerns a proposed equipment purchase: Cost $161,100 Salvage value $4,900 Estimated useful life 4 years Annual net cash flows $47,000 Depreciation method Straight-line The annual average investment amount used to calculate the accounti, You have the following information on a potential investment: Capital investment $85,000 Estimated useful life 4 years Estimated salvage value $0 Estimated annual net cash inflows: Year 1 $18,000 Ye, The Seago Company is planning to purchase $524,500 of equipment with an estimated seven-year life and no estimated salvage value. What is the most that the company would be willing to invest in this project? turnover is sales div gifts. Babirusa Company is considering the following investment: Initial capital investment $175,000 Estimated useful life 3 years Estimated disposal value in 3 years $25,000 Estimated annual savings in cas, Sunset Inc. is trying to determine if they should invest in a new machine that would be more efficient and would generate an annual profit of $100,000 (after tax). Peng Company is considering an investment expected to generate an average net income after taxes of $3,300 for three years. Negative amounts should be indicated by a minus sign.) 2. (PV of $1. What is the cash payback period? Required information [The following information applies to the questions displayed below.) Compute the accounting rate of return for this investment assume the company uses straight-line depreciation BOOK Accounting Rate of Return Choose Denominator: Choose Numerator = = Accounting Rate of Return Accounting rate of retum Print teferences. Compute this machine's accoun, If an asset costs $210,000 and is expected to have a $30,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $30,000 each year, the cash payback period is: A) 8 years B) 7 years C) 6 years D) 5 years, The anticipated purchase of a fixed asset for $400,000 with a useful life of 5 years and no residual value is expected to yield a total income of $150,000. Required: Prepare the, X Company is thinking about adding a new product line. a. The expected future net cash flows from the use of the asset are expected to be $595,000. Explain. Each investment costs $480. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. Assume Peng requires a 15% return on its investments. TABLE B.4 f= [(1 + i)"-1Vi Future Value of an Annuity of 1 Rate Periods 1% 2% 3% 6% 7% 8% 9% 10% 12% 15% 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 0000 .0000 1.0000 10000 2.0100 2.0200 2.0300 2.0400 2.0500 2.0600 2.0700 2.0800 2.0900 2.1000 2.1200 3.0301 3.0604 3.0909 3.1216 3.1525 3.1836 3.2149 3.2464 3.2781 3.3100 3.3744 4.0604 4.1216 4.1836 4.2465 4.3101 4.3746 4.4399 5.1010 5.2040 5.3091 5.4163 5.5256 5.6371 5.7507 5.8666 5.9847 6.1051 6.3528 6.1520 6.3081 6.4684 6.6330 6.8019 6.9753 7.1533 7.3359 7.5233 7.7156 8.1152 7.2135 7.4343 7.6625 7.8983 8.1420 8.3938 8.6540 8.9228 9.2004 9.4872 10.0890 8.2857 8.5830 8.8923 9.2142 9.5491 9.8975 10.2598 10.6366 11.0285 11.4359 12.2997 9.3685 9.7546 10.1591 10.5828 11.0266 11.4913 11.9780 12.4876 13.0210 13.5795 14.7757 1.0000 2.1500 3.4725 4.9934 6.7424 8.7537 11.0668 4.5061 4.5731 4.6410 4.7793 16.7858 10 10.4622 10.9497 11.4639 12.0061 12.5779 13.1808 13.8164 14.4866 15.1929 15.9374 17.5487 20.3037 11.5668 12.1687 12.8078 13.4864 14.2068 14.9716 15.7836 16.6455 7.5603 18.5312 20.6546 24.3493 12.6825 13.4121 14.1920 15.0258 15.9171 16.8699 17.8885 18.9771 20.1407 21.3843 24.1331 12 13 13.8093 14.6803 15.6178 16.6268 17.7130 18.8821 20.1406 21.4953 22.9534 24.5227 28.0291 14 14.9474 15.9739 17.0863 18.2919 19.5986 21.0151 22.5505 24.2149 26.0192 27.9750 32.3926 40.5047 15 16 17.2579 18.6393 20.1569 21.8245 23.6575 25.6725 27.8881 30.3243 33.0034 35.9497 42.7533 55.7175 17 18.4304 20.0121 21.7616 23.6975 25.8404 28.2129 30.8402 33.7502 36.9737 40.5447 48.8837 65.0751 18 19 20.8109 22.8406 25.1169 27.6712 30.5390 33.7600 37.3790 41.4463 46.0185 51.1591 63.4397 88.2118 20 22.0190 24.2974 26.8704 29.7781 33.0660 36.7856 40.9955 45.7620 51.1601 57.2750 72.0524 102.4436 25 30 35 41.6603 49.9945 60.4621 73.6522 90.3203 111.4348 138.2369 172.3168 215.7108 271.0244 431.6635 40 48.8864 60.4020 75.4013 95.0255 120.7998 154.7620 199.6351 259.0565 337.8824 442.5926 767.0914 1,779.0903 29.0017 34.3519 16.0969 7.2934 18.5989 20.0236 21.5786 23.2760 25.1290 27.1521 29.3609 31.7725 37.2797 47.5804 19.6147 21.4123 23.4144 25.6454 28.1324 30.9057 33.9990 37.4502 41.3013 45.5992 55.7497 75.8364 28.2432 32.0303 36.4593 41.6459 47.7271 54.8645 63.2490 73.1059 84.7009 98.3471 133.3339 212.7930 34.7849 40.5681 47.5754 56.0849 66.4388 79.0582 94.4608 113.2832 136.3075 164.4940 241.3327 434.7451 881.1702 Used to calculate the future value of a series of equal payments made at the end of each period. 2. For example: How much would you need to invest today at 10% compounded semiannually to accumulate $5,000 in 6 years from today? The payback period for this investment is: a) 3.9 years b) 3 years, Hung Company accumulates the following data concerning a proposed capital investment: cash cost of $216, 236, net annual cash flows of $43,800, and present value factor of cash inflows for 10 years 5.22 (rounded). The payback period for this investment Is: a) 3 years b) 3.8 years c) 4, A company is contemplating investing in a new piece of manufacturing machinery. Assume Peng requires a 10% return on its investments. The estimated life of the machine is 5yrs, with no salvage value. 2003-2023 Chegg Inc. All rights reserved. The salvage value is defined as the estimated book value of any asset after deducting all the depreciation on the asset. The corporate tax rate is 35 percent. Peng Company is considering an investment expected to generate an average net income after taxes of $3,400 for three years. Management predicts this machine has an 11-year service life and a $140,000 salvage value, and it uses s, A machine costs $400,000 and is expected to yield an after-tax net income of $9,000 each year. Assume Peng requires a 10% return on its investments, compute the net present value of this investment. a. Compute Loon s taxable inco. The investment costs $57.600 and has an estimated $8,400 salvage value. The asset has an estimated salvage value of $12,000, and an estimated useful life of 10 years. A machine costs $180,000, has a $12,000 salvage value, is expected to last eight years, and will generate an after-tax income of $39,000 per year after straight-line depreciation. The estimated cash inflow from the project are as follows: Year Cash Inflow Present value factor at 10% 1 70,000 0.909 2 80,000 0.826 3 120,000 0.751 4 90,000 0.683 5 60,000 0.621 Ca, A company is considering investment in a Flexible Manufacturing System. Ignoring taxes, what is the most that the company would be willing to in, Strauss Corporation is making a $89,600 investment in equipment with a 5-year life.The company uses the straight-line method of depreciation and has a tax rate of 40 percent.The company's required rat, Strauss Corporation is making a $89,750 investment in equipment with a 5-year life.The company uses the straight-line method of depreciation and has a tax rate of 40 percent.The company's required rat, Strauss Corporation is making a $91,950 investment in equipment with a 5-year life. projected GROSS cash flows from the investment are $150,000 per year. The company's required r, Strauss Corporation is making an $85,900 investment in equipment with a 5-year life. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Estimate Longlife's cost of retained earnings. A company has three independent investment opportunities. The machine will cost $1,800,000 and is expected to produce a $200,000 after-tax net income to be rece, A company can buy a machine that is expected to have a three-year life and a $25,000 salvage value. The present value of the future cash flows is $225,000. , e following two costs of production, respectively: (1) the paper; and (2) the authors' one-time fees. Question. Which of, Fraser Company will need a new warehouse in eight years. Comp, Pang Company is considering an investment expected to generate an average net income after taxes of $2,900 for three years. d) 9.50%. The investment costs $54,000 and has an estimated $7,200 salvage value. All other trademarks and copyrights are the property of their respective owners. Experts are tested by Chegg as specialists in their subject area. The approximate net present value of this project, The Zinger Corporation is considering an investment that has the following data: Year 1 Year 2 Year 3 Year 4 Year 5 Investment $17,500 $4,900 Cash inflow $3,900 $3,900 $10,000 $5,900 $5,900 Cash inflows occur evenly throughout the year. = The company uses the straight-line method of depreciation and has a tax rate of 40 percent. Investment required $60,000,000, Salvage value after 10 years $0, Gross income $2, A company forecasts free cash flow of $40 million in three years. 8 years b. Choose Numerator: Accounting Rate of Return Choose Denominator: = Accounting Rate of Return = Accounting rate of return, Required information [The following information applies to the questions displayed below.) Compute the net present value of this investment. The investment costs$45,000 and has an estimated $6,000 salvage value. The payback period f. Elmdale Company is considering an investment that will return a lump sum of $743,100, 7 years from now. Required information [The following information applies to the questions displayed below.) Compute the net present value of this investment. Management predicts this machine has a 9-year service life and a $140,000 salvage value, and it uses str, A machine costs $500,000 and is expected to yield an after-tax net income of $19,000 each year. The company requires a 10% rate of return on its investments. The company is considering an investment that would yield a cash flow of $12,000 per year for five years. If an asset costs $70,000 and is expected to have a $10,000 salvage value at the end of its ten-year life and generates annual net cash inflows of $10,000 each year, the cash payback period is _____. (PV of. What is the most that the company would be willing to invest in this, A company has a minimum required rate of return of 9%. Flower Company is considering an investment which will return a lump sum of $2,500,000 six years from now. Required information The following information applies to the questions displayed below Peng Company is considering an investment expected to generate an average net income after taxes of $3,500 for three years. S4 000 per year for 6 years accumulates to $29,343.60 ($4,000 7.3359). A novel dynamic modeling method for a multi-product production line is developed to investigate dynamic properties of the system under random disruptions such as machine failures and market demand . Which option should the company choose to invest in? check bags. The lease term is five years. #define An irrigation canal contractor wants to determine whether he Ignore income taxes. A new operating system for an existing machine is expected to cost $690,000 and have a useful life of six years. What amount should Cullumber Company pay for this investment to earn a 12% return? If a potential investments internal rate of return is above the companys hurdle rate, should the investment be made? Goodwill. a. Assume Peng requires a 10% return on its investments. Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three years. Axe anticipates annual net income after taxes of $1,500 from selling the product produced by the new machin, A company can buy a machine that is expected to have a three-year life and a $21,000 salvage value. What is the annual depreciation expense using the straight line method? The management predicts that this machine has a 10-year services life and a $100,000 salvage value, and, The Placque Company purchased an office building for $4,555,000. Compute the payback period. straight-line depreciation The company uses the straight-line method of depreciation and has a tax rate of 40 percent. Compute the accounting rate of return for this investment; assume the company uses straight-line depreciation. The company s required rate of return is 13 percent. The present value of the future cash flows, at the company's desired rate of re, E company is a lessee with a capital lease. Assume the company uses straight-line depreciation. Good estimates are available for the initial investment and the a, Pito Company has been in operation for several years. The initial outlay of the project would be $800,000 and the project's assets would have a residual value of $50,000 at the end o. Axe Corporation is considering investing in a machine that has a cost of $25,000. t, A machine costs $380,000, has a $20,000 salvage value, is expected to last eight years, and will generate an after-tax income of $60,000 per year after straight-line depreciation. Assume the company uses straight-line depreciation. (Round answer to 2 decimal places. Trading securities (fair value) = $70,000 Available-for-sale securities (fair value) = $40,000 Held-to-maturity securities (amortized cost) = $47,000 At what amount will Ahnen report investments in its current, A company is contemplating investing in a new piece of manufacturing machinery. Assume the company uses straight-line depreciation. X The investment costs $45,600 and has an estimated $8,700 salvage value. For example: What is the future value of $4,000 per ye ar for 6 years assuming an annual interest rate of 8%. The investment costs $47,400 and has an estimated $8,400 salvage value. Peng Company is considering an investment expected to generate an average net income after taxes of $2,700 for three years. The company is considering an investment that would yield an after-tax cash flow of $30,000 in four years. The investment costs $45,000 and has an estimated $6,000 salvage value. Everything you need for your studies in one place. Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three years. an average net income after taxes of $2,900 for three years. The investment costs $48,000 and has an estimated $10,200 salvage value. Using the orig, A building has a cost of $500,000 and accumulated depreciation of $40,000. Assume Peng requires a 5% return on its investments. The investment costs $45,000 and has an estimated $10,800 salvage value. (Round your computations and answers to 0 decimal p, BAP Corporation is reviewing an investment proposal. The investment costs $51,900 and has an estimated $10,800 salvage value. What rate of return should you expect for your investment in Fir, If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment? FV of $1. Compute the net present value of this investment. (For calc, Natt Company is considering undertaking a project that would yield annual profits (after depreciation) of $68,000 for 5 years. Accounting Rate of Return Choose Denominator: Choose Numerator: - Accounting Rate of Return Accounting rate of return. Capital investment - $15,000 Estimated useful life - 3 years Estimated salvage value - zero Estimated net cash inflow: -Year 1 - $7,00, Compute the net present value of each potential investment. The investment costs $48,600 and has an estimated $6,300 salvage value. A company purchased a plant asset for $55,000. The company anticipates a yearly net income of $3,700 after taxes of 20%, with the cash flows to be received evenly throughout each year. 2003-2023 Chegg Inc. All rights reserved. The investment costs $45,600 and has an estimated $6,600 salvage value. The expected future net cash flows from the use of the asset are expected to be $580,000. The investment costs $59,400 and has an estimated $7,200 salvage value. The investment costs $45,300 and has an estimated $7,500 salvage value. What is the present value, Strauss Corporation is making a $91,800 investment in equipment with a 5-year life. The company's required rate of return is 11 percent. (The following information applies to the questions displayed below) Part 1 of 2 Peng Company is considering an investment expected to generate an average net income after taxes of $2,100 for three years. Assume Peng requires a 10% return on its investments, compute the net present value of this investment. Assume Peng requires a 15% return on its investments. At the beginning of 2007, the company has a deferred tax asset of $360 pertain, Your company has been presented with an opportunity to invest in a project that is summarized as follows: Investment required $60,000,000 Annual gross income $14,000,000 Annual operating Costs 5,500,000 Salvage Value after 10 years 0 The project is expec, 1. They first apply the real options approach to assess the investment values as well as the distribution of energies such as biomass, coal, natural . You can specify conditions of storing and accessing cookies in your browser, Peng Company is considering an investment expected to generate an average net income after taxes of $2,600 for three years. Compute the net present value of this investment. Compute this machine's accoun, A machine costs $500,000 and is expected to yield an after-tax net income of $15,000 each year. The investment costs $45,300 and has an estimated $7,500 salvage value. The investment costs $45,000 and has an estimated $6,000 salvage value. Footnote 7 Although DS567 refers to paragraph (b)(iii) of article 73 of the TRIPS, considering its high coincidence with the text of article XXI of the GATT and the consistency of "judicial practice" of the panel in the specific trial process, Footnote 8 this chapter will categorize both sources as a security . Assume Peng requires a 5% return on its investments. The investment costs $45,000 and has an estimated $6,000 salvage value. What amount should Elmdale Company pay for this investment to earn a 8% return? Park Co. is considering an investment that requires immediate payment of $27,000 and provides expected cash inflows of $9,000 annually for four years. ), Summary of Strategic Management southern African concepts and case fourth edition, chapters 1 to 4, What of the following is not considered practice before the IRS per Circular 230? The asset is recorded at $810,000 and has an economic life of eight years. Required information (The following information applies to the questions displayed below.) B. a. The expected future net cash flows from the use of the asset are expected to be $580,000. Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three years. a. (Round answer to, During the year, Loon Corporation has the following transactions: $400,000 operating income; $325,000 operating expenses; $25,000 municipal bond interest; $60,000 long-term capital gain; and $95,000 short-term capital loss. Capital investment $900,000 Estimated useful life 6 years Estimated salvage value zero Estimated annual net cash inflow $213,000 Required, Sparky Company invested in an asset with a useful life of 5 years. Fair value method c. Historical cost m, Blue Fin Inc. requires all capital investments to generate a minimum internal rate of return of 15%. , ided by total investment.. total investment is current assets (inventories, accounts receivables and cash) plus fixed assets. The company currently has no debt, and its cost of equity is 15 percent. Learn about what net present value is, how it is calculated both for a lump sum and for a stream of income over multiple years. The investment costs $56,100 and has an estimated $7,500 salvage value. A machine costs $190,000, has a $10,000 salvage value, is expected to last nine years, and will generate an after-tax income of $30,000 per year after straight-line depreciation. The NPV is computed as: {eq}\displaystyle \text{Present value of annuity (PVA) } = P * \frac{1 - (1 + r)^{-t}}{r} {/eq}, Become a Study.com member to unlock this answer! Present value Note: NPV is always a sensitive problem bec. The founder asked you for $220,000 today and you expect to get $1,070,000 in 9 years. Yearly depreciation = (56,100 - 7,500) / 3 = $16,200.00. During those years the company has been profitable, and it expects to continue to be profitable in the foreseeable future. negative? Cullumber Company is considering an investment that will return a lump sum of $942,800, 3 years from now. View some examples on NPV. For ex ample: What is the present value of $2,000 per year for 10 years assuming an annual interest rate of 9%. and EVA of S1) (Use appropriate factor(s) from the tables provided.

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