Chapter 10 Solutions

# Chapter 10 Solutions - Managerial Accounting Acct 2301 Fall...

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Managerial Accounting Acct 2301 Fall 2006 Chapter 10 Problems 1. Randall Company paid \$70,000 to purchase a depreciable asset. The asset is expected to produce annual cash inflows of \$13,000 per year for ten years. Western’s desired rate of return is 12%. a. What is the present value of this investment? \$13,000 * 5.650223 = \$73,453 b. What is the net present value of this investment? \$73,453 - \$70,000 = \$3,453 2. Swisher Company is considering two investment opportunities. Each investment costs \$10,000 and will provide the same total future cash inflows. The schedule of estimated cash receipts for each investment follows: Investment 1 Investment 2 Year 1 \$5,000 *.909091=4545 \$3,000 Year 2 \$4,000 *.826446=3306 \$3,000 Year 3 \$2,000 *.751315=1503 \$3,000 Year 4 \$1,000 *.683013= 683 \$3,000 PV of cash in = \$10,037 a.) Determine the net present value of each investment assuming a 10% desired rate of return. Investment 1 = \$10,067 – 10,000 = \$37 Investment 2 = \$3000 * 3.169865 = \$9,510 – 10,000 = (\$490) b.) Which investment should Swisher Company take? Investment 1

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## This homework help was uploaded on 04/22/2008 for the course ACCT 2302 taught by Professor All during the Spring '08 term at Texas Tech.

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Chapter 10 Solutions - Managerial Accounting Acct 2301 Fall...

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